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Jeff Block from Thomson's Corporate Services Strategic Research group discusses poison pills. Transcript: Good afternoon. My name is Jeff Block with Thomson Financials Strategic Research group. I am going to talk to you about Poison Pills and the current state of this controversial topic. Poison pills are a shareholders rights plan that inflict financial harm on anyone who tries to take over a company. In short, it is a rights offering that will dilute the stock and make it much more expensive to buy the company. First of all I'd like to point out that not one poison pill has ever been intentionally triggered. We project it would cost a hostile bidder, on average, 4 to 5 times more just to pay for the float if they swallowed the pill. For example if somebody bought Smith Int'l at $77 per share, it would cost roughly $15.4 billion dollars if welcomed by the board. However if the poison pill was activated, we estimate it would then cost over $72 billion dollars. You can now understand why this is viewed as a tool to spur negotiations. Some companies may be concerned with the markets initial reaction to a pill adoption. Tesoro Corp adopted a pill in late November and the stock fell 13.6% comparing the price one week before the adoption announcement and one week after. However we found the median performance for other companies adopting a pill during the same time period was actually a gain of 2.5%. Therefore do not always assume that the market will pressure the stock in response to a pill adoption. With the increased focus on shareholder activism, many have concluded that the poison pill is a dying relic of the 1980's. That is not entirely true. The first time adoption rate for non-Fortune 500 companies have been on the rise since 2004. Nearly 77% of the adoptions are foreign companies. The driving force is the rapid increase in hostile and unsolicited activity in Japan and Canada. Since 1996, the first time adoptions of poison pills for US Fortune 500 companies has been on a steady decline. Only 2 Fortune 500 names have adopted pills this year. Just because the first time adoption rate has been minimal, does not mean there are not poison pills out there. Nearly 20% of current Fortune 500 list have an existing pill in force -- almost a third will be expiring in 2008. Many institutional investors do not support poison pills because they think it could obstruct a reasonable offer but they will usually look at it on a case-by-case basis. The usual duration of a pill is 10 years but that has been on the decline since 2006. If the duration is shorter, then investors may be open to supporting the decision of the board to adopt a pill. If not, they could withhold votes at the next board election. Today over 1500 pills are currently in-force. However, nearly 40% of those plans will be expiring over the next 2 years. Directors have a big choice in front of them: do they appeal to shareholders and let the pill expire, or do they renew it to ward off hostile takeovers? Many US based corporations do not require a shareholder vote when adopting or renewing poison pills. Companies facing this issue must understand their shareholder base and have a firm grasp of what could happen. For those wishing to view an executive summary of this report on this topic please go to the Corporate Services Center at www.thomson.com/financial/CorporateResources Thank you.