Twitter adopts ‘poison pill’
Part of: GS-III: Science & Tech
Context: Twitter Inc. on April 15 adopted a limited-duration shareholder rights plan to protect itself from billionaire entrepreneur Elon Musk’s $43 billion cash takeover offer.
- Musk has offered to buy the company outright for more than $43 billion, saying it “needs to be transformed as a private company” in order to build trust with its users and do better at serving what he calls the “societal imperative” of free speech.
‘Poison pill’ Strategy
- Under the ‘poison pill’ strategy the rights will become exercisable if anyone acquires ownership of 15% or more of Twitter’s outstanding common stock in a transaction not approved by the Board.
- The move would allow existing Twitter shareholders — except for Musk — to buy additional shares at a discount, thereby diluting Musk’s stake in the company and making it harder for him to corral a majority of shareholder votes in favor of the acquisition.
- Twitter’s plan would take effect if Musk’s roughly 9% stake grows to 15% or more.
- This plan would reduce the likelihood that any one person can gain control of the company without either paying shareholders a premium or giving the board more time to evaluate an offer. Such defenses, formally called shareholder rights plans, are used to prevent the hostile takeover of a corporation by making any acquisition prohibitively expensive for the bidder.
Musk could try to fight the measure in court, but “no court has overturned a poison pill in the last 30 years.