Twitter adopts ‘poison pill’ defense in Musk takeover bid

Twitter adopts ‘poison pill’ defense in Musk takeover bid

Twitter said Friday that its board of directors has unanimously adopted a “poison pill” defense in response to Tesla CEO Elon Musk’s proposal to buy the company for more than $43 billion and take it private

April 16, 2022, 1: 09 AM

6 min read

Twitter’s plan would take effect if Musk’s roughly 9% stake grows to 15% or more.

The poison pill injects another twist into a melodrama surrounding the possibility of the world’s richest person taking over a social media platform he described Thursday as the world’s “de facto town square.”

Twitter said its 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. These defenses, also known as shareholder rights plans, are used by the board to stop hostile takeovers of corporations by making any acquisition too expensive for the bidder.

Even if Musk’s takeover attempt is discouraged, he could still take control of the company by engaging in a proxy fight, where shareholders vote to keep or fire the company’s directors. Twitter stated that its plan does not prevent the board from accepting or negotiating an acquisition proposal if it is in the company’s best interest.

“They’re gearing up for a battle here with Musk,” said Daniel Ives, an analyst for Wedbush Securities. They also need to be patient in trying to find another buyer. “

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. Having a public platform that is maximally trustworthy and inclusive is very important for the future of civilization,” he stated during an interview at a TED conference on Thursday, hours after his bid was announced.

With about 82 million Twitter followers, Musk is both a prolific user of the platform and a vocal critic of the measures it has taken to restrict accounts that spread misinformation or amplify violent rhetoric and hate speech. Musk said Thursday that he opposed permanent user bans. The most well-known example being Twitter’s suspension after the Jan. 6 Capitol Riot, where former President Donald Trump was banned from Twitter.

Musk revealed in recent regulatory filings that he’d been buying Twitter shares in almost daily batches starting Jan. 31, ending up with a stake of about 9%. Only Vanguard Group has more Twitter shares. A lawsuit was filed Tuesday in New York federal court alleging that Musk illegally delayed disclosing the stake in the social media company to buy more shares at lower prices.

After Musk announced his stake, Twitter quickly offered him a seat on its board on the condition that he would limit his purchases to no more than 14.9% of the company’s outstanding stock. Five days later, the company announced that Musk had declined to take part in the company’s stock.

Ives stated that Twitter’s poison-pill path was a predictable defensive move, but could also be seen as a sign of weakness for the company on Wall Street.

Musk could try to fight the measure in court, but “no court has overturned a poison pill in the last 30 years,” said Columbia University law professor John Coffee. Coffee stated that while rallying shareholders to expel the board might be easier, it also presents challenges for Musk.

Musk made the offer before Twitter counterpunched on Friday. A Saudi prince, who is one of Twitter’s largest shareholders, mocked Musk’s offer in an email on Thursday. Al Waleed bin Talal said he would reject Musk’s overtures because he didn’t believe $43 billion “comes close to the intrinsic value of Twitter, given its growth prospects.” The prince punctuated the tweet with another one from 2015 disclosing his Kingdom Company had raised its stake in Twitter to 5.2% — about half of what Musk now holds.

While Musk’s $54. 20-per-share offer is nearly 40% greater than Twitter’s stock price before he disclosed his huge investment, it’s still far below the peak closing price of $77. 63 reached less than 14 months ago. At that time, Twitter was valued at about $62 billion.

Musk responded to the prince with a tweet asking how many Twitter shares he holds and then made what may have been a veiled reference to the 2018 murder of journalist Jamal Khashoggi that was tied to Saudi Arabia’s Crown Prince Mohammed bin Salman. Musk asked in a tweet on Thursday, “What is the Kingdom’s view on journalistic freedom-of-expression?” In a sign investors are skeptical Musk’s offer, Twitter’s stock dropped in the first day trading after the announcement. This is exactly what an approving market reaction looks to be. Friday’s Good Friday holiday saw the stock markets close. Twitter stated that it will disclose more details about its shareholder plan in a future regulatory filing. Mark Cuban, Dallas Mavericks owner, and tech investor, also shared his theories on Twitter. He believed that Musk is trying to increase the stock price of the company to make a profit. Using a profane term, Cuban also postulated Musk is using the bid to torment the U.S. Securities and Exchange Commission, the stock market regulatory agency that fined Musk $20 million in 2018 after he tweeted about a potential buyout of Tesla that never materialized. In Thursday’s TED conference, Musk made it clear that he still has a problem with the SEC and cursed them with a profanity.

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AP Technology Writer Michael Liedtke in San Ramon, California contributed to this report.


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