Twitter uses poison pill to defend against Tesla boss buyout

Tesla boss Elon Musk’s attempt to buy all of Twitter’s stock in order to run the service as a private company in the future is increasingly taking on the characteristics of a classic takeover battle. After Musk informed the board of directors of Twitter, which he plans to join after buying the first 9 percent, of his intention to buy the rest, they hired investment bank Goldman Sachs to explore better options. The Tesla boss receives advice from Morgan Stanley, but the next decision was made by Twitter.

Twitter’s Poison Pill to Defend Against Musk

A time-limited rights plan had been decided, the embattled company objectively informed in a statement on Friday. Exchange services immediately called this a “poison pill”, and in fact, subscription rights in the form chosen by Twitter are a classic measure to ward off unwanted takeover bids. The phrase drastic should not be understood in such a way that a target company poisons itself out of desperation – the buyer should rather choke on it.

In the case of Twitter, the plan would be designed to allow all investors to realize the full value of their investment by reducing the likelihood of an individual or group gaining control of the company through purchases on the Free market. At the same time, the board should buy time to make important decisions in the interests of investors. And it unanimously decided that if someone owns 15% or more of Twitter shares, all other shareholders will be granted the right to buy two additional shares at a discount for each of their existing shares.

So if Tesla boss Musk buys another 6% of Twitter on the stock market, the result would be that the number of remaining shares would triple. The price would fall accordingly, but only Musk would receive no compensation in the form of additional shares – and his overall stake would also fall accordingly. It seems unfair, but according to Investopedia, this practice and other forms of poison pills have been common since the 1980s and have resisted legal action.

Tesla boss still has a plan B

It won’t make a Tesla takeover of Twitter impossible, but it will likely be more expensive and more difficult. The activation of the rights is subject to the condition that the excess of 15% is not borne by the Council. So Musk could settle with him, or a “white knight” could come up with a management-backed takeover bid and save Twitter from him.

In the briefing to the board, he ruled out the possibility of the Tesla boss improving his own offer of $54.20 per share and also expressed his lack of confidence in him. Musk said in an interview Thursday that he wasn’t sure the Twitter purchase would be successful, although he certainly didn’t lack the necessary financial means. But he also has a plan B. Musk wouldn’t say what that was, but before that he had toyed with creating his own news platform. If that happens, it could become clear whether the Tesla boss and his company need the much-criticized and used service faster than they need it, or vice versa.

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