What is the 'Jonestown Defense'

Jonestown defense refers to a defensive strategy employed by a company to foil a takeover in which it seeks to ruin itself rather than be acquired. Also known as a "suicide pill," the Jonestown Defense could be considered a more extreme version of a poison pill.

BREAKING DOWN 'Jonestown Defense'

Jonestown defense is derived from the 1978 Jonestown massacre in which a religious cult (the People's Temple) led by Jim Jones committed mass suicide in Guyana.

A company targeted for a hostile takeover might, for example, sell its intellectual property to the founder, effectively destroying the company's competitive advantage. Or a company might take on a large amount of debt in an effort to go bankrupt. Another option is to give existing shareholders the right to buy additional shares at below-market prices before the acquisition as well as new shares below market after the acquisition, effectively diluting the holdings of shareholders of the acquiring company.

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