The board of Twitter has chosen to use the poison pill strategy previously used successfully by Kohls and Yahoo. But this is a very different story. The board is going to print up more shares of Twitter that will dilute the shares, shareholders already own, but they will be able to buy shares at a discounted price but they won’t sell to Musk. That would make a takeover too expensive for Musk.
There are several things that could happen. Twitter could be the target of lawsuits, claiming that the board was not living up to its fiduciary responsibilities. That could create major problems for the board, especially if they win, which is quite possible. Elon Musk is offering a premium for the company’s stock, but the board is trying to prevent the deal from becoming reality. But, any judge would have to consider what would have been best for the investor.
Then again, Musk could start a proxy fight and if he could get 51% of the votes either by buying stock or getting a proxy from investors totaling at least 51%. Should that happen, he could fire the board and stop the sale of the additional stock. In this scenario, he could very well end up owning Twitter, although it is doubtful that he could buy all of the stock and take the company private. But, he would have control.
The third option is Musk finding someone who could come forward with a larger bid, who would be acceptable to the Gestapo at Twitter. In fact, another possible suitor has come forward and they have bought more stock than Musk has. Thoma Bravo, a private-equity firm owned by Puerto Rican billionaire Orlando Bravo, has made it clear that they intend to outbid Musk for Twitter. But, if they do, Musk can dump his stock for much more than he paid for it. The profits could go to building his own site. He really can’t lose no matter what happens.
The Daily Wire reported Friday:
“Twitter, Inc. today announced that its Board of Directors has unanimously adopted a limited duration shareholder rights plan (the ‘Rights Plan’),” a press release from the company said. “The Board adopted the Rights Plan following an unsolicited, non-binding proposal to acquire Twitter.”
“The Rights Plan is intended to enable all shareholders to realize the full value of their investment in Twitter,” it continued. “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.”
“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,” Twitter said.
“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,” the company added. “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.”