To begin, you have to understand the concept known in the securities world as a “poison pill.” A poison pill is a device designed to prevent a hostile takeover of a company. The usual way that poison pills work is through the issuance of new preferred shares to existing shareholders. These shares have redemption features that make an acquisition unattractive to a new owner. Other forms of poison pills have been developed.
The proposed Toysmart list sale provoked a storm of legal activity. The Federal Trade Commission and state attorneys general filed lawsuits to block the sale. Eventually, Disney, Toysmart’s owner, bought the list without any intention of actually using it.
A secondary result of the Toysmart controversy was the introduction of an amendment to the Bankruptcy Act that would address the sale of customer lists by bankrupt companies. The amendment, offered by Sen. Patrick Leahy, D-VT, was intended to stop bankruptcy from providing an excuse for ignoring established privacy policies. The amendment is still pending.
If the company’s customer records represent a significant part of the value of the company, a potential corporate raider would think twice if a hostile takeover resulted in purchase of the company but not access to the customer records. No one would pay a premium for a company without the ability to contact its existing customers. The principle is the same, by the way, for business customers and consumer customers.
Would a privacy poison pill succeed? I cannot say for sure, but privacy offers many opportunities to protect your customers and, maybe, to protect your corporate interests.