Can Twitter Stop A Musk Takeover With A 'Poison Pill'?
Following a $43 billion takeover bid, the Twitter board has adopted a 'poison pill' strategy to stop Musk from gaining control of the company.
One day after Elon Musk offered to buy Twitter for an estimated $43 billion, the Twitter board has made its move to thwart the eccentric billionaire from gaining control of the company. Earlier this week, Musk offered to buy Twitter outright, offering $54.20 per share for the micro-blogging platform. The offer came just days after he became the company's largest shareholder following his purchase of a 9.2 percent stake for a reported $2.89 billion.
Musk was already aware that Twitter's board of directors might not welcome his buyout proposal with open arms. In an interview with TED chief Chris Anderson on Thursday, Musk admitted as much, saying that he doesn't think he'll actually be able to acquire Twitter. However, Musk also claimed that he has a Plan B if the offer was rejected by the Twitter board. During the course of the interview, Musk also reiterated his position that Twitter needs to move to an open-source algorithm for the sake of transparency.
The Twitter board has now adopted the so-called 'poison pill' defense to prevent Elon Musk from taking over the company. A poison pill defense dilutes the target shareholder's ownership in a company by issuing preferential discounted shares to other shareholders. It is a common practice for companies to stave off hostile takeover bids, but it also shortchanges common shareholders and institutional investors, who see their holdings also get diluted. In a press release on Friday, Twitter's board of directors said they "unanimously adopted a limited duration shareholder rights plan" to reduce the likelihood of Musk gaining control over the company through open market stock accumulation. The shareholder rights plan can be exercised if a party acquires 15 percent of the stock without prior approval, and will be in place for one year until April 14, 2023. It will ensure that anybody seeking to take control over the company will have to pay all other shareholders a 'control premium' over and above the stock's market value.
In addition to the poison pill, Twitter was also reportedly considering other defense mechanisms to prevent Elon Musk from buying the company. According to Bloomberg, the board was mulling whether to dismiss the current $43 billion bid as 'too low,' thereby pricing Musk out of the market. Musk has said that $54.20 a share is the most he'd offer, although he can still make a higher bid if he thinks that would increase his chances of gaining control of the company. However, now that the company has chosen its weapon in its battle against Musk, it will be hoping that the time-tested method works. If it doesn't, the other options will still be viable, although they're not as potent as the poison pill to begin with.
Even with the fate of Twitter hanging in balance, Musk has been going about his merry ways, polling his Twitter followers on who should get to decide whether the sale goes ahead. On Thursday, Musk asked his Twitter followers whether they agree with the notion that the shareholders - and not the board - should get to decide whether the company should be taken private at $54.20 per share. The poll closed earlier today, with most of Musk's fervent supporters in agreement with him on that one.
Source: Twitter/PRNewswire, Bloomberg, Elon Musk/Twitter