Twitter does not want to be the game of the richest person in the world.
So on Friday, it turned out to be a tried and tested corporate defense system invented in the 1980s – the prime day of the corporate rider – to block Elon Musk’s attempt at a possible takeover and buy its board for some time.
The process known as a poison pill has a simple purpose: if the buyer accumulates shares above a certain threshold, the goal of a potential buyer is to make it less tasty for the company to follow. In the case of Twitter, if Mr. Musk buys more than 15 percent of the company, Twitter will be flooded with new stock that all shareholders except Mr. Musk can buy at a discount.
This would immediately dilute Mr. Musk’s partnership and make it significantly more expensive for him to buy the company. Mr Musk currently owns just over 9 per cent of Twitter’s stock.
Twitter says his plan will remain shy for just one year. This tool will not prevent the company from negotiating with any potential buyer and will give it more time to bargain for a deal that Twitter’s board believes reflects the company’s value.
Drew Pascarella, a senior lecturer in finance at Cornell University, said the strategy did not mean the company was going to be independent forever. “That means they can effectively resist Elon.”
Twitter is examining whether to invite bids from others, said two people close to the company. It could be a possibility if the buyers’ court decides Silver Lake, a private equity firm that already owns a significant stake in Twitter, is a possibility, people say. Silver Lake, a technology-centric shopping fund, has $ 90 billion in assets under management, and one of its managing partners, Egan Durban, sits on Twitter’s board.
Silver Lake has come before with the help of Twitter. In 2020, when Elliott Management, an active investor, collected shares on Twitter and wanted to change that, Silver Lake helped the parties reach a compromise. As part of the deal, Silver Lake has invested $ 1 billion in Twitter.
But Silver Lake agreed at the time not to acquire more than 5 percent of the company, so Twitter would have to abandon the so-called standstill deal before enjoying any offers from Silver Lake. It is also unclear whether Silver Lake, which has a history of its own with Mr. Musk, will offer a deal after working on a failed attempt to privatize Tesla, or whether it has the necessary funding to do so on its own.
Silver Lake declined to comment.
At least one other private equity firm, Thoma Bravo, is weighing in on a potential offer for Twitter, Reuters reports and confirmed a person familiar with Thoma Bravo.
Poison pills have been around for decades. The strategy was invented by lawyers Martin Lipton, a founding partner of Watchtel, Lipton, Rosen and Katz, also known as the Shareholder Right Plan, in 1982. It was a way to increase the defense of a company against unwanted occupation by so-called corporate attackers such as Carl Icon and T. Boon Pickens.
They have been a part of America’s corporate tool kit ever since. Netflix took a poison pill in 2012 to stop Mr. Icon from buying its shares. Papa John’s had a use against John Snyder, the founder and chairman of the pizza chain in 2018.
According to securities experts, investors rarely try to get a poison pill by buying shares outside of the company’s set limits. One said it would be “financially devastating”, even for Mr Musk.
But Mr. Musk, who is valued at more than $ 250 billion and is the chief executive of Tesla and SpaceX, rarely follows suit. He announced his intention to acquire Twitter on Thursday, releasing an unsolicited bid worth more than 40 40 billion. In an interview at a TED conference later that day, he took issue with Twitter’s moderation policy, which regulates content shared on the platform.
Twitter is “de facto town square,” Mr Musk said. “It’s really important that people have the reality and the perception that they are able to speak freely within the limits of the law.” Twitter currently bans a wide range of content, including spam, threats of violence, sharing of personal information, and integrated misleading campaigns.
Mr Musk argued that the privatization of Twitter would lead to more free speech on the platform. “My firm belief is that having a universal platform that is the most trustworthy and widely included is crucial for the future of civilization,” he said in a TED interview. He further added that the algorithm used by Twitter to rank the content, determine what millions of users are viewing on the service every day, should be universal for users to audit.
Mr Musk’s concerns have been shared by many executives on Twitter, who have been pushing for more transparency about his algorithm. The company has published Internal research Its algorithm is biased and has funded efforts to create an open, transparent standard for social media services.
On Friday, Twitter said its board, which includes Jack Dorsey, a Twitter co-founder who is friendly with Mr. Musk, voted unanimously to approve the shareholder rights plan. Twitter is working with two Wall Street banks, Goldman Sachs and JPMorgan Chase, and people familiar with the matter say it weighs in on its options. Mr. Musk is working with Morgan Stanley.
Mr Musk told the TED conference that if Twitter’s board rejected his offer, he had a Plan B, although he did not share it. Already, analysts say his bid – which offers significantly more per share than current stock prices but below its peak last year – could devalue the company and force it to raise it. They also expressed concern about Mr. Musk’s ability to finance together.
Mr Musk may challenge poisoning in court, but it is unlikely to succeed, says Edward Rock, a professor of corporate governance at New York University School of Law.
“The first question will be: does this bid pose a threat to Twitter and shareholders? And there are plenty and plenty of arguments that they could make it a threat,” Mr Rock said.
Mr Musk seems to have jumped on the bandwagon. When he informed the board of his bid on Wednesday, he said it was his “best and final offer” and that he would “reconsider my position as a shareholder” if it was rejected.
But he admitted at the TED conference on Thursday that he did not like to lose. And later in the day, he took to his favorite social media platform: “Twitter at $ 54.20 should rely on privately held shareholders, not the board,” he tweeted along with a yes / no vote.
At .20 54.20 Twitter should rely on privately held shareholders, not boards
– Elon Musk (lonelonmusk) April 14, 2022