Explained: Twitter's poison pill vs Elon Musk's strategy
New Delhi, Apr 18: In an attempt to foil billionaire Elon Musk's takeover, Twitter's board of directors adopted a limited-duration shareholder rights plan called a "poison pill", a defense strategy used by the firm following an unsolicited, non-binding proposal to acquire the social media company.
What is 'poison pill'?
Popularized back in the 1980s when publicly held companies were being stalked by corporate raiders such as Carl Icahn - now more frequently described as "activist investors", the provision gives the right for shareholders other to acquire company's more shares at a relatively inexpensive price.
The share holders in Twitter have decided to trigger the provision if Musk (or any other investor) acquires more than 15 per cent of the company's shares. At this stage, the billionaire CEO owns around 9 per cent of Twitter's shares.
"The Rights Plan will reduce the likelihood that any entity, person or group gains control of Twitter through open market accumulation without paying all shareholders an appropriate control premium or without providing the Board sufficient time to make informed judgments and take actions that are in the best interests of shareholders," the company said in its statement.
The Rights Plan will not stop the Board from engaging with parties or accepting an acquisition proposal if the Board believes that it is in the best interests of Twitter and its shareholders, it added.
Will it Prevent Musk from Taking over Twitter?
Although it would not prevent Musk from making his offer directly to Twitter shareholders by launching a public offer, it would prevent most of the company's shareholders from selling their shares, the public offering would allow them to register their support or disapproval of what Musk put forward.
Musk, employing a corporate raider-style tactic, took to Twitter to put the decision of acquisition to a vote of all company shareholders. A corporate raider is an investor who buys a large number of shares in a corporation whose assets appear to be undervalued.
The large share purchase would give the corporate raider significant voting rights, which could then be used to push changes in the company's leadership and management. This would increase share value and thus generate a massive return for the raider.
"Taking Twitter private at $54.20 should be up to shareholders, not the board," Musk tweeted with the opinion poll with two options 'Yes' and 'No'. Implying that shareholders have to decide as they own the company, not the board of directors. This comes at a time when the world's richest man made the offer in an updated 13D filing.
Musk offered a "best and final" bid to purchase 100 per cent of Twitter for USD 41.39 billion with USD 54.20 per share in cash. "I invested in Twitter as I believe in its potential to be the platform for free speech around the globe, and I believe free speech is a societal imperative for a functioning democracy," Musk said in his filing.
"However, since making my investment I now realize the company will neither thrive nor serve this societal imperative in its current form," he said. In a separate Tweet, Musk mentioned that he will try hard to keep as many shareholders in privatized Twitter as allowed by law.
He tweeted, "Will endeavour to keep as many shareholders in privatized Twitter as allowed by law." A series of tweets were posted after Tesla's chief claimed of having a 'Plan B' ready if the board of the social media giant Twitter decides to reject his offer to buy the entire company.
Meanwhile, Twitter has said that it will be holding an emergency "all-hands meeting with employees" at 2 pm (local time) to discuss Elon Musk's hostile bid to buy the entire company. "The Twitter Board of Directors will carefully review the proposal to determine the course of action that it believes is in the best interest of the Company and all Twitter stockholders," Twitter said in a statement.
Musk's Reaction to Poison Pill
However, Musk has not reacted to the company's poison pill, but on Thursday he indicated he was ready to wage a legal battle. "If the current Twitter board takes actions contrary to shareholder interests, they would be breaching their fiduciary duty," Musk tweeted. "The liability they would thereby assume would be titanic in scale."