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Twitter will employ what is known as a “poison pill” in an effort to stop Elon Musk’s $43 billion bid to buy the company.
“Poison pills, also known as shareholder rights plans, are designed to prevent hostile takeovers, and the board voted unanimously to approve a measure that would dilute Musk’s stake in the social media company,” wrote Marketplace.com.
Poison pills are designed to flood the market with newly issued stock to the point where a takeover becomes financially impossible, or at least very unfeasible. Twitter did not disclose the details of its poison pill Friday, as markets were closed in observance of Good Friday. The tech giant said it would provide more details in an upcoming SEC filing on Monday.
Twitter’s plan will be enacted if any one shareholder acquires more than 15% of the company’s stock. Musk briefly held the title of Twitter’s largest shareholder after increasing his holding to 9% over the course of several weeks. Vanguard, an index fund, soon surpassed Musk’s holding after amassing a little over 10% of Twitter shares.
According to the Associated Press, poison pills can often be used as a negotiation tactic by companies holding out for a better deal. Twitter left its door open by emphasizing that its poison pill won’t prevent its board from “engaging with parties or accepting an acquisition proposal” at a higher price.
Poison pill strategies can also lead to lawsuits if boards are accused of acting outside the best interest of their shareholders. These complaints are sometimes filed by shareholders who believe the proposed takeover offer is fair and want to cash out.
Musk has argued that Twitter would be acting against the best interest of its shareholders if they move forward with the poison pill plan. “If the current Twitter board takes actions contrary to shareholder interests, they would be breaching their fiduciary duty,” Musk wrote in a tweet Thursday. “The liability they would thereby assume would be titanic in scale.”
Additional details are expected to be revealed when markets open Monday.
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Source: National File