Twitter adopts ‘poison pill’ defence in Elon Musk takeover bid

PROVIDENCE, R.I. –

Twitter saidFriday’s announcement by the board of directors was that it has adopted a “poison pills” defense in response to Elon Musk’s offer to buy Tesla and take it private.

This would enable existing Twitter shareholders to purchase additional shares at a discount. It would also dilute Musk’s stake and make it more difficult for him to win a majority shareholder vote in favor of the acquisition.

Twitter’s plan would be effective if Musk’s roughly 10% stake increases to 15% or greater.

Twitter saidThe poison pill would allow investors to “realize all of their investment”. It would also reduce the chance that any person could gain control of the company. Shareholders will not be paid a premium, or given more time to consider their offers. These defenses, also known as shareholder rights plans are used to stop a corporation from being taken over by making any acquisition too expensive for the bidder.

Musk could still take control of the company even if the takeover attempt is stopped by shareholders voting to keep or fire the current directors. Twitter saidThe plan does not prevent the board of directors from engaging with parties and accepting an acquisition offer if it is in the company’s best interest.

“They are preparing for a fight here with Musk.” saidDaniel Ives, analyst at Wedbush Securities. “They must also give themselves the time to look for another potential buyer.”

Twitter announced in a Securities filing Thursday that Musk offered the company to be bought for more than $43Billion. Musk stated that the social media platform needed to be made private in order to earn trust and build trust among its users.

Musk stated, “I believe free speech to be a societal imperative for functioning democracy.” saidThe filing. “I now realize that the company will no longer thrive nor serve this societal imperative under its current form.”

Later, he said even more during an interview on stage at a TED conference: “Having a public forum that is maximally trustworthy and inclusive is crucial for the future of civilization.”

In regulatory filings, Musk disclosed that he had been buying Twitter shares almost daily since Jan. 31 and ended up with about 9%. Vanguard Group holds more Twitter shares than Musk. A suit was filed Tuesday in New York Federal Court alleging that Musk unlawfully delayed disclosing his stake to the social media company in order to buy more shares at lower prices.

Twitter offered Musk a seat on its board immediately after Musk declared his stake. However, he was required to limit his purchase of stock to 14.9%. However, the company refused to accept his offer. saidMusk’s decline was confirmed five days later.

Ives saidTwitter’s poison-pill path is a predictable defensive move but could be seen on Wall Street as a “signal of weakness”.