Over the last couple of days, Elon Musk has been “playing” with the fate of the social media platform, Twitter and it would seem that the Board was more or less powerless to the billionaire’s antics.
The board has now come out with a plan to thwart the Tesla CEO’s takeover bid. It has issued a new “shareholder rights plan” following an unsolicited, non-binding proposal to acquire Twitter.
According to the social media platform in a press release, “the Rights Plan is intended to enable all shareholders to realize the full value of their investment in Twitter. The Rights Plan will reduce the likelihood that any entity, person or group gains control of Twitter through open market accumulation without paying all shareholders an appropriate control premium or without providing the Board sufficient time to make informed judgments and take actions that are in the best interests of shareholders.”
Remember, just a couple of days ago, Elon Musk made an offer to buy 100% of Twitter for $54.20 per share in cash. Note that he already has 9.2% of the social media platform which he purchased a couple of days ago, making him the largest shareholder.
In response to the offer, the Twitter Board had issued a statement saying that it would “carefully review the proposal to determine the course of action that it believes is in the best interest of the Company and all Twitter stockholders.”
The “poison pill” plan is now its response. This plan basically blocks hostile takeovers by giving certain shareholders the right to purchase more stock if an outsider attempts to seize control.
The press release states that:
“The Rights Plan does not prevent the Board from engaging with parties or accepting an acquisition proposal if the Board believes that it is in the best interests of Twitter and its shareholders.”
“The Rights Plan is similar to other plans adopted by publicly held companies in comparable circumstances. Under the Rights Plan, the rights will become exercisable if an entity, person or group acquires beneficial ownership of 15% or more of Twitter’s outstanding common stock in a transaction not approved by the Board. In the event that the rights become exercisable due to the triggering ownership threshold being crossed, each right will entitle its holder (other than the person, entity or group triggering the Rights Plan, whose rights will become void and will not be exercisable) to purchase, at the then-current exercise price, additional shares of common stock having a then-current market value of twice the exercise price of the right.”
Twitter says the the Rights Plan will expire on April 14, 2023.
A poison pill plan is a maneuver engineered by corporate law firms in the 1980s to shield client companies from unwanted acquisition by increasing the number of shares needed for a takeover. It’s considered a last-ditch effort because it dilutes shareholder value and can create major collateral damage.
In Twitter’s case, this involves allowing all shareholders but the prospective acquirer to purchase additional shares at a deep discount.
Netflix implemented a poison pill in 2012 after Carl Icahn purchased a 10% stake in the company. A shareholder policy meant any attempt to purchase a large chunk of the streaming service without board approval would trigger the release of a raft of new discounted shares. Icahn ultimately sold off his Netflix holdings.
