Twitter said Friday it had adopted a “poison pill” plan that could prevent billionaire Elon Musk from significantly increasing his stake in the social media company. The countermeasure comes a day after Tesla CEO Musk unveiled a hostile $43 billion bid for Twitter.
In a statement, Twitter said the new plan will reduce the likelihood that an individual, group or company could take control of Twitter through open market share purchases without paying “a reasonable control premium” or giving the board sufficient time give informed judgments.”
Musk, who announced earlier this month that he owns a 9.2% stake in Twitter, proposed in a regulatory filing Thursday to buy all of the company’s outstanding common shares for $54.20 per share. But investors signaled they were skeptical about the offer, as the stock actually closed below the previous day’s price at $45.08 per share.
A major investor has already spoken out against the offer. Saudi Arabia’s Prince Alwaleed bin Talal, who controls more than 4% of Twitter according to Bloomberg News, said Thursday that “I” decline the offer.
In his offer letter, Musk said he wanted to privatize the company, adding that his offer was “not a threat.” However, he added that if he couldn’t buy Twitter, he “would have to reconsider my position as a shareholder.”
What is a “poison pill”?
A so-called poison pill plan is intended to give a company that is the target of a hostile takeover more leverage in the situation. It originated in the 1980s when lawyers for an oil company targeted by corporate raider T. Boone Pickens advised the company to flood the market with new stock, making it harder for Pickens to acquire a majority stake, according to the Corporate Finance Institute to acquire.
In the case of Twitter, the plan comes into effect when an individual or group purchases at least 15% of Twitter stock in a purchase that has not been approved by the board of directors.
If triggered by such a purchase, the plan would give other shareholders the right to buy additional Twitter stock at a discount, which would then dilute the value of Musk stock. That would effectively reduce the control Musk could gain through stock purchases.
Twitter said the plan does not prohibit its board from accepting an acquisition proposal if it believes “that it is in the best interests of Twitter and its shareholders.”