Twitter is trying to stop billionaires By Elon Musk takeover attempt with a “poison pill” – a financial device that companies have used to fend off unwelcome suitors for decades.
What does poison do?
The ingredients of each poison pill vary, but they’re all designed to give a company’s board an option to supply the market with so much newly created stock that continued management becomes expensive. This strategy was popularized in the 1980s when publicly held companies were being tracked by corporate thieves like Carl Icahn – now often described as “active investors”. .
Twitter did not disclose details about its poison pill on Friday, but said it would provide more information in an upcoming filing with the Securities and Exchange Commission, which the company delayed because of the market. Public schools are closed on Fridays.
The San Francisco corporate plan will be implemented if a shareholder accumulates shares of 15% or more. Musk, best known as the CEO of Teslacurrently holds about 9% shares.
Could a poison pill be a bargaining scheme?
While they are said to help prevent an unwanted takeover, the poison pills also often open the door to further negotiations that could force a contractor to sweeten the deal. If a higher price makes sense for the board, a poison pill can simply be set aside along with the excitement it causes, clearing the way for a completed sale.
True to form, Twitter stayed open by stressing that its poison pill won’t stop its board from “engaging with parties or accepting an acquisition proposal” at a higher price.
The use of a poison pill also often leads to lawsuits alleging that a company’s board and management team are using tactics to keep their jobs against the best interests of the companies. shareholder. These claims are sometimes filed by shareholders who think a buyback offer is fair and want to cash out at that price, or by bidders vying for the right to buy.
How did Elon Musk react to Twitter’s announcement?
Musk, a popular tweeter with 82 million Twitter followers, had no immediate reaction to the company’s poison pill. But on Thursday, he said he was ready to wage a legal battle.
Musk tweeted. “Accordingly, the liability they think will be larger in size.”
Musk has publicly said that the $43 billion bid is his best and final offer for Twitter, but other company suitors have made similar claims before finally raising the bar. value. With an estimated fortune of $265 billion, Musk appears to have enough pockets deep enough to make his offer, though he is still looking to fund the proposed purchase.
How has this defense worked in the past?
Takeovers often dissolve into games that include potions and other maneuvers designed to make trading more difficult. That’s what happened in one of the biggest and most intriguing takeover dances in Silicon Valley history..
After business software maker Oracle made an unsolicited $5.1 billion offer to smaller rival PeopleSoft in June 2003, the two companies spent the next 18 months battling it out. together.
To protect itself, PeopleSoft not only applied a poison that allowed the board of directors to flood the market with more shares, but also created a so-called “customer assurance program”. That plan promises to pay customers five times the cost of a software license if PeopleSoft is sold within the next two years, creating an estimated $800 million in debt to an acquiring company. .
PeopleSoft also had another help when the US Justice Department filed an antitrust lawsuit seeking to block the takeover, although a judge ruled in Oracle’s favor.
Although the company ended up selling to Oracle, PeopleSoft’s defensive strategy paid off for its shareholders. Oracle’s final purchase price was $11.1 billion – more than twice the original bid.
