Twitter adopts ‘Poison Pill’ to avoid acquisition of Elon Musk

Twitter Inc. adopted a measure that would protect it from hostile takeover bids, taking steps to thwart the unwanted bid from billionaire Elon Musk.

Twitter Inc. adopted a move that would protect it from hostile takeover bids, taking steps to thwart billionaire Elon Musk’s unwanted bid to take the company private and try to make it a bastion of free speech.

The board established a shareholders’ rights plan, exercisable if a party acquires 15% of the shares without prior approval, with a duration of only one year. The plan seeks to ensure that anyone who takes control of the social media company through open market accumulation pays all shareholders an appropriate control premium, according to a statement on Friday.

Twitter enacted the plan to buy time, according to a person familiar with the matter. The board, which met on Thursday to review the proposal, wants to be able to review and negotiate any deal, and can still accept it.

The chief executive of Tesla Inc. on Thursday offered $54.20 a share in cash on Twitter, valuing the company at $43 billion. Musk, which he said was his “best and final” offering, had already racked up a more than 9% share of Twitter since earlier this year.

In addition to Musk’s offer, Twitter has garnered interest from other parties, including tech-focused private equity firm Thoma Bravo, Bloomberg reported on Friday. Goldman Sachs Group Inc. and JPMorgan Chase & Co. are advising Twitter.

A poison pill defense strategy allows existing shareholders the right to purchase additional shares at a discount, effectively diluting the hostile party’s equity stake. Poison pills are common among companies under fire from activist investors or in hostile takeover situations.

Under Twitter’s plan, each right will entitle its holder to purchase, at the then-current exercise price, additional shares of common stock with a then-current market value of twice the exercise price of the right.

Musk didn’t address the poison pill issue on Friday, but he thanked 73% of people in an online Twitter poll who showed their support for his takeover plan, and pondered that removing the character limit on tweets was long overdue. .

‘Love’

Included in Musk’s securities file touting the offer Thursday morning was a text script he sent to the company. In it, he said, “It’s a high price and your shareholders will love it.”

At least one prominent investor, however, said the offer was too low and the market reaction seemed to agree. Saudi Arabia’s Prince Alwaleed bin Talal said the deal “doesn’t come close to the intrinsic value” of the popular social media platform.

Speaking later Thursday at a TED conference, Musk said he wasn’t sure he “will actually be able to acquire it.” He added that his intention was also to retain “the number of shareholders permitted by law” rather than retain sole ownership of the company.

Twitter shares tumbled 1.7% in New York on Thursday, reflecting the market’s view that the deal is likely to be rejected or failed. The Wall Street Journal previously reported that the San Francisco-based company was considering a poison pill defense.

Plan B

Musk first disclosed his Twitter share on April 4, making him the largest single investor. At the TED conference, he indicated that he has a Plan B if the Twitter board rejects his offer. He refused to elaborate. But in his filing earlier in the day, he said he would rethink his investment if the offer failed.

“If the deal doesn’t work out, as I don’t have confidence in management nor do I believe it can drive the necessary change in the public market, I will need to reconsider my position as a shareholder,” Musk said.

Twitter, unlike Meta Platforms Inc., Snap Inc. and other tech giants, has no founders with majority voting control. This makes the company particularly vulnerable to activist investors and takeover interests. While it’s unclear what founder and board member Jack Dorsey thinks of Musk’s deal, he at least shares the view that Twitter might be better off private.

“As a public company, Twitter has always been ‘for sale’.” Dorsey tweeted. “That’s the real problem.”

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