"Flip-out" Poison Pill

[keep_running]

Not sure if we have to know this for the exam, but could someone explain to me how the “flip-out” poison pill definition works?
The definition on investopedia is a bit confusing…

 

[CFACamp]

Assuming you mean “flip-over” poison pill. Given a hostile takeover or merger, it gives the shareholders in the target company the right to buy shares in the acquiring company at a discounted price. This would dilute the equity position of the shareholders in the aquiring company as they would issue more shares for a price below the market value of the share.

 

[S2000magician]

As to how it works, exactly: that’s something I’ve always found puzzling. I’m not sure if the target company subsidizes the purchase of the acquirer’s stock or not, but I cannot think of another way. It seems unlikely that the acquirer would agree to issue shares at below-market price, but maybe they do.
It’s odd.