‘Poison pill’: Twitter defends against takeover with investor protection plan

Twitter’s supervisory board has mutually agreed to a rights plan. The Supervisory Board is thus reacting to Elon Musk’s unsolicited and non-binding offer to take over the platform. The plan aims to enable shareholders to realize the full value of their investments. For this, the plan provides a control bonus to investors, which makes it more difficult to take control and gives time to the board of directors to decide on Elon Musk’s offer of more than 40 billion dollars. The Rights Plan is temporary and expires on April 14, 2023.

Such a rights plan is known in the financial world as the “poison pill” and is a sign of opposition to Elon Musk’s hostile takeover. It becomes effective when Musk — or any other shareholder — acquires more than 15% of the company’s common stock in a transaction not authorized by the board. Similar plans have already been used by companies in similar situations. If so, all shareholders are free to purchase additional common shares at the then current exercise price. Shares purchased at such time have a market value of twice the exercise price. During the implementation of the rights plan, the acquirer is prevented from acquiring shares.

Following Elon Musk’s takeover bid, the New York Post reported that private equity firm Thoma Bravo also expressed interest in a bid on Twitter. According to Reuters, it is conceivable that other investment firms are now considering their options as well. Globally, the industry has approximately US$1.8 trillion in capital. Unlike many big tech companies, most buyout firms wouldn’t face antitrust restrictions if they acquired Twitter.

The use of the “poison pill” by Twitter’s oversight board is not unexpected. Other major shareholders, such as Saudi Prince Alwaleed bin Talal, had already announced their resistance to Elon Musk in advance. During the back and forth on Musk’s ambitions on Twitter, he had already turned down a position on the supervisory board earlier this week. Earlier this month, Musk briefly became Twitter’s largest shareholder with a 9.2% stake through stock purchases. In response, the Vanguard Group increased its own stake to 10.3%. The attempted takeover of Twitter is not the first time Elon Musk has disrupted the stock market. In the past, Musk’s tweets have already triggered price swings in cryptocurrencies such as Bitcoin.

Twitter confirmed Musk’s takeover bid and move to the rights plan in official statements.


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