Twitter said on Friday that its board of directors unanimously approved a “poison pill” defense in response to Tesla CEO Elon Musk’s proposal to buy and privatize the company for more than $43 billion.
The move will allow existing twitter shareholders (except MuSK) to buy additional shares at a discount, diluting Musk’s stake in the company and making it more difficult for him to win a majority vote for the acquisition.
If Musk’s approximately 9% stake increases to 15% or more, Twitter’s plan will take effect.
The poison pill injected another turning point into the melodrama surrounding the world’s richest man’s possible takeover of a social media platform. On Thursday, he described the platform as the “de facto town square” in the world
Twitter said the plan would reduce the likelihood of anyone gaining control of the company without paying a premium to shareholders or giving the board more time to evaluate the offer. This defensive measure, officially known as the shareholder rights plan, is used to prevent malicious acquisitions of companies, making any acquisition too costly for bidders.
Even if this prevents Musk’s acquisition attempt, musk can still take over the company by launching a “proxy war”. In this struggle, the current shareholders decide to dismiss or retain the current directors. Twitter said its plan would not prevent the board from negotiating or accepting the offer if it was in the best interests of the company.
“They are preparing to fight musk,” said Daniel ives, an analyst at wedbush securities. “They also have to give themselves time to find another potential buyer.”
Musk offered to buy the company directly for more than $43 billion, saying that the company “needs to be transformed into a private company” in order to build trust with users and better serve what he called the “social mission” of freedom of speech.
“Having a public platform that maximizes trust and inclusiveness is crucial to the future of civilization,” he said in an interview on stage at the 2022 Ted conference in Vancouver on Thursday Just hours after he announced his bid.
Musk, with about 82 million twitter followers, is both a prolific user of the platform and an outspoken critic of its measures to restrict the dissemination of misinformation or amplify violent and hate speech accounts. On Thursday, he said he opposed the permanent user ban, most notably Twitter’s suspension of former president Donald Trump’s account after the January 6 Capitol Hill riots.
Musk disclosed in a recently submitted regulatory document that he has been buying twitter shares in batches almost every day since January 31, and finally holds about 9% of the shares. Only pioneer group controls more twitter sharing. A lawsuit filed in federal court in New York on Tuesday said musk illegally delayed the disclosure of his stake in the social media company in order to buy more shares at a lower price.
After musk announced his shareholding, twitter quickly gave him a seat on the board of directors on the condition that he would limit his purchase of shares to no more than 14.9% of the company’s issued shares. But the company said five days later that musk had refused.
Ives said Twitter’s “poison pill” route was a predictable defense strategy, but could be seen as a “sign of weakness” for the company on Wall Street.
Musk may try to oppose the measure in court, but John coffee, a law professor at Columbia University, said, “in the past 30 years, no court has overturned a poison.”. Coffee said it might be more feasible to convene shareholders to remove the board of directors, but it also posed a challenge to musk.
Musk’s proposal had been resisted before twitter launched a counterattack on Friday.
A Saudi prince, one of Twitter’s major shareholders, mocked Musk’s offer in a tweet on Thursday. Alvalid bin talar said he would reject Musk’s proposal because he did not believe that $43 billion was “close to the intrinsic value of twitter, considering its growth prospects.” the prince added a 2015 tweet to twitter, revealing that his kingdom company had increased its stake in twitter to 5.2%, about half of Musk’s current stake.
Although Musk’s offer of $54.20 per share is nearly 40% higher than Twitter’s share price before he disclosed his huge investment, it is still well below the highest closing price of $77.63 less than 14 months ago. At that time, twitter was worth about $62 billion.
Musk replied to the prince on twitter, asking him how many twitter shares he held, and then vaguely mentioned the murder of journalist Jamal hashhouji in 2018, which was related to crown prince Mohammed bin Salman of Saudi Arabia. “What is the Kingdom’s view on freedom of press and expression?” Musk asked in Thursday’s tweet.
Twitter’s shares fell on the first day of trading after Thursday’s offer, suggesting investors were skeptical of Musk’s offer – the opposite of what the market recognized. The stock market was closed on Friday for the good Friday holiday. Twitter said it plans to disclose more details of its shareholder plan in its upcoming regulatory documents.
Another outspoken billionaire, Dallas Mavericks owner and technology investor Mark Cuban, shared his theory on twitter that musk is trying to raise the company’s share price in order to make a profit by selling shares. Kuban also used a blasphemous term that musk was using bidding to torture the securities and Exchange Commission. In 2018, after the securities market regulator announced on musk twitter that it might acquire Tesla but never realized it, it fined him $20million.
At Thursday’s Ted event, musk made it clear that he was still angry with the SEC and cursed regulators with dirty words.