In response to Tesla CEO Elon Musk’s proposal to buy the firm for more than $43 billion and take it private, Twitter’s board of directors overwhelmingly authorised a “poison pill” defence on Friday.
Existing Twitter shareholders, with the exception of Musk, would be able to buy additional shares at a reduced price, diminishing Musk’s ownership in the firm and making it more difficult for him to secure a majority of shareholder votes in favour of the acquisition.
If Musk’s about 9% investment in Twitter climbs to 15% or more, Twitter’s plan will go into force.
The poison pill adds to the theatrics around the potential of the world’s wealthiest person seizing control of a social media site he hailed as the world’s “de facto town square” on Thursday.
Twitter claims that its plan will limit the chances of a single person gaining control of the firm without either paying a premium to shareholders or giving the board additional time to consider an offer.
These defences, properly known as shareholder rights plans, are designed to deter hostile takeovers by making any acquisition prohibitively expensive for the bidder.
Even if it deters Musk’s takeover attempt, he may still acquire control of the firm through a “proxy struggle,” in which shareholders vote on whether to keep or fire the company’s current directors.
Twitter’s plan does not exclude the board from negotiating or accepting an acquisition offer if it is in the firm’s best interests, according to the company.
“They’re preparing for a fight with Musk,” said Daniel Ives, a Wedbush Securities analyst. “They’ll also need to allow themselves time to look for another buyer.”
Musk has offered to acquire the firm altogether for more than $43 billion, claiming that it “needs to be reformed as a private corporation” to gain user trust and better serve the “societal imperative” of free expression.
He added during an onstage interview at a TED event on Thursday, just hours after his bid was disclosed, “Having a public platform that is maximally trusted and broadly inclusive is tremendously crucial to the survival of civilization.”
Musk, who has 82 million Twitter followers, is a frequent Twitter user as well as a vocal opponent of the platform’s efforts to limit accounts that disseminate disinformation or amplify violent language and hate speech.
He remarked on Thursday that he opposes permanent user bans, such as Twitter’s suspension of former President Donald Trump’s account following the Jan. 6 Capitol incident.
In recent regulatory filings, Musk revealed that he began buying Twitter shares in practically daily batches on Jan. 31, eventually amassing a holding of about 9%.
Only Vanguard Group has a larger proportion of Twitter. Musk allegedly improperly delayed revealing his position in the social media business in order to buy additional shares at lower prices, according to a lawsuit filed Tuesday in federal court in New York.
Musk was promptly awarded a position on Twitter’s board of directors after announcing his interest, on the condition that he limit his purchases to no more than 14.9 per cent of the company’s outstanding stock.
Musk, though, declined five days later, according to the business.
According to Ives, Twitter’s poison pill strategy is a predicted defensive move, but it might be viewed as a “show of weakness” on Wall Street.
Musk might take the legislation to court, but according to Columbia University law expert John Coffee, “no court has overturned a poison pill in the last 30 years.”
Coffee believes that rallying shareholders to remove the board of directors is more feasible, but it also raises obstacles for Musk.
Before Twitter’s Friday counterpunch, Musk’s proposition had already been met with opposition.
In a post on Thursday, a Saudi prince who is a large shareholder in Twitter mocked Musk’s offer. Al Waleed bin Talal said he would turn down Musk’s offer because $43 billion “doesn’t come close to the intrinsic worth of Twitter, considering its development prospects.”
The prince followed up with a tweet from 2015, revealing that his Kingdom Company had increased its position on Twitter to 5.2 per cent, roughly half of what Musk now owns.
Musk’s $54.20-per-share bid is about 40% higher than Twitter’s stock price before he revealed his massive investment, but it’s still a long way off from the top closing price of $77.63 reached less than 14 months ago. Twitter was valued at $62 billion at the moment.
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Musk responded to the prince with a tweet asking how many Twitter shares he has, and then made what could have been a veiled allusion to Saudi Arabia’s Crown Prince Mohammed bin Salman’s role in the death of journalist Jamal Khashoggi in 2018.
“How does the Kingdom feel about journalistic freedom of expression?” Musk posted the question in a tweet on Thursday.
Twitter’s stock plummeted on the first day of trading after Musk’s takeover bid was announced Thursday, indicating that investors are wary of Musk’s offer. This is the polar opposite of what a favourable market reaction looks like.
For the Good Friday holiday, the stock markets were closed on Friday. In an upcoming regulatory filing, Twitter says it will provide further specifics about its shareholder proposal.
Mark Cuban, the owner of the Dallas Mavericks and a tech investor, chimed in on Twitter with his idea that Musk is trying to inflate the company’s stock price so he can sell his interest at a profit.
Using a harsh phrase, Cuban also speculated that Musk is using the bid to annoy the US Securities and Exchange Commission, which fined Musk $20 million in 2018 after he tweeted about a potential Tesla buyout that never occurred.
Musk made it obvious at Thursday’s TED event that he is still enraged by the SEC, cursing the authorities profanely.