Twitter reveals ‘poison pill’ strategy to avoid Musk’s takeover. What will he do next?
The ball is now in Elon Musk's court and he now needs to make a move that will decide whether he will pursue the acquisition of Twitter stock and take the company private, CNN reported.
After raising buying up over nine percent stake in the company, Musk revealed his real intentions of taking the social media platform private to "unlock its potential". While Musk's $43 billion of the company came with a 38 percent premium on the stock price, the Board of Directors at Twitter introduced a Shareholders Rights Plan, called the 'poison pill' defense in business terms, that is used to prevent a hostile takeover.
What is Twitter's poison pill defense?
According to the details revealed in a filing with the Securities and Exchange Commission on Monday, Twitter's plan will become active if Musk or any other shareholder tries to increase their stake in the company beyond 15 percent without the board's approval.
Once this is activated, Twitter shareholders (other than the one whose stake has now gone beyond the cap) will be able to buy new stock for a discounted price of $210. Meanwhile, the aggressive buyer would have to shell out $420 for the same stock, making it not only less attractive but also more expensive to buy more stock in the company. Other shareholders will be able to buy more stock at discounted prices and dilute the majority ownership of the individual or entity aiming for a takeover.
The plan is scheduled to remain in place for a period of one year, so all eyes are now set on Elon Musk.
What's Musk's next move?
With the Twitter board declaring that it will not take the decision in a jiffy, Musk has to now reveal his next move. In his offer, Musk had said that he would have to reconsider his shareholder position if the board were to reject his offer.
Technically though, the Twitter board hasn't rejected his offer yet, and it even retains the right to negotiate a better deal with Musk or any other entity willing to buy a stake in the company. After Musk's move, other asset management firms have also shown their desire to be part of Twitter but haven't placed formal proposals yet, CNN reported.
It is likely that Musk may have to team up with a capital firm to finance the takeover, but that also requires agreement on a future vision and strategy for Twitter. In spite of the bonhomie shown by CEO Parag Agarwal on the platform, Musk has declared that he has no faith in the management at Twitter, so it is likely that following a Musk takeover, we will see an exodus from the Twitter board. Musk has been quite frank about this, stating that the board will be paid $0.
Board salary will be $0 if my bid succeeds, so that’s ~$3M/year saved right there— Elon Musk (@elonmusk) April 18, 2022
Musk had also tweeted that had a 'Plan B' if his bid were rejected. However, that is unlikely to be dragging Twitter to court. As we had reported earlier, Musk himself faces a lawsuit for not declaring his newly acquired stake early enough and courts do not strike out 'poison-pill' defenses as illegal.
Another option that he possibly referred to in a tweet is a 'tender offer' where Musk buys stock directly from Twitter shareholders, which is also a proves that the board is against acting against the interest of Twitter shareholders, something Musk has said quite a few times already in the past few days.
We do not have a Neuralink that tells us what is on Elon's mind, but he needs to make a move soon before someone else strikes the iron while it is hot.