Twitter adopts ‘poison pill’ plan to counter Elon Musk’s offer

On Friday, Twitter said it adopted a “poison pill” plan that could prevent billionaire Elon Musk from significantly increasing his stake in the social media company. The countermeasure comes a day after Tesla CEO Musk unveiled a Hostile $43 billion bid for Twitter.

In a statement, Twitter said the new plan would reduce the chances that any person, group or company could gain control of Twitter through open market stock purchases without paying “a control premium appropriate” or allow the board sufficient time “to make informed judgments.”

Musk, who revealed earlier this month it holds a 9.2% stake on Twitter, offered in a regulatory filing Thursday to buy all of the company’s outstanding common shares for $54.20 per share. But investors signaled they viewed the offer with skepticism, with the stock actually closing below its price the day before at $45.08 per share.

A major investor has already spoken out against the offer. Saudi Prince Alwaleed bin Talal, who controls more than 4% of Twitter according to Bloomberg News, said on Thursday that “I reject” the offer.

In his offer letter, Musk said he wanted to take the company private and added that his offer “is not a threat”. However, he added that if he was unable to buy Twitter, he “should reconsider my position as a shareholder”.

What is a “poison pill”?

A so-called poison pill plan is designed to give a company that is the target of a hostile acquisition more leverage in the situation. It emerged in the 1980s, when lawyers for an oil company targeted by corporate robber T. Boone Pickens advised the company to flood the market with new stock, making it harder for Pickens to buy a majority stake, according to the Corporate Finance Institute.

In the case of Twitter, the plan will come into effect if a person or group buys at least 15% of Twitter shares in a purchase that is not approved by its board of directors.

If triggered by such a purchase, the plan would give other shareholders the right to purchase additional shares of Twitter stock at a discount, which would then dilute the value of Musk’s stock. This would effectively reduce the control Musk could gain through stock purchases.

Twitter said the plan does not prohibit its board of directors from accepting an acquisition proposal if it believes “it is in the best interests of Twitter and its shareholders.”

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