The strategy allows existing shareholders to purchase additional shares at a discount and is valid for one year.
By Jillian WardBloomberg
Posted on April 15, 2022April 15, 2022
Twitter Inc. took action that would shield it from hostile takeover bids and took steps to thwart billionaire Elon Musk’s unwelcome bid to privatize the company and turn it into a bastion of free speech.
The board established a shareholders’ rights plan, exercisable if either party acquires 15% of the shares without prior approval, and lasts only one year. The plan is designed to ensure that anyone who takes control of Twitter through amassing in the open market pays all shareholders a fair control premium, a statement said Friday.
Twitter implemented the plan to buy time, according to a person familiar with the matter. The board wants to be able to analyze every deal and still be able to accept it.
“The Rights Plan does not prevent the board from engaging with parties or considering an acquisition proposal when the board believes doing so is in the best interests of Twitter and its shareholders,” the company said.
Tesla Inc.’s chief executive officer offered Twitter $54.20 a share in cash on Thursday, valuing the social media company at $43 billion. Musk, who said it was his “best and last” offer, had already acquired a more than 9% stake in Twitter since earlier this year. Twitter’s board of directors met Thursday to review Musk’s proposal and determine whether it is in the best interests of the company and all of its shareholders.
A poison pill defense strategy gives existing shareholders the right to buy additional shares at a discount, effectively diluting the opposing party’s ownership stakes. Poison pills are common with companies under fire from activist investors or in hostile takeover situations.
Under Twitter’s plan, each right entitles its holder to purchase additional shares of common stock at the then current exercise price with a then current market value of twice the right’s exercise price.
‘Love it’
Included in Musk’s securities filings disclosing the offering Thursday morning was a text script that he sent to the company. In it, he said, “It’s a steep price and your shareholders are going to love it.”
However, at least one prominent investor said the supply was too low and the market reaction appeared to be correct. Saudi Arabia’s Prince Alwaleed bin Talal called the deal “does not come close to the value” of the popular social media platform.
Later Thursday at a TED conference, Musk said he wasn’t sure he “can actually acquire it.” He added that his intention is to retain “as many shareholders as the law allows,” rather than retaining sole ownership of the company himself.
Twitter shares fell 1.7% in New York on Thursday, reflecting the market’s view that the deal is likely to be rejected or fail. The Wall Street Journal previously reported that the San Francisco-based company is considering a poison pill defense.
Musk first announced his Twitter holdings on April 4, making him the largest single investor. At the TED conference, he hinted that he had a plan B in case Twitter’s board of directors declined his offer. He declined to elaborate further. But in his filing earlier in the day, he said he would reconsider his investment if the bid fails.
“If the deal doesn’t work out, because I don’t have confidence in management nor do I believe I can drive the necessary changes in the public market, I would have to reconsider my position as a shareholder,” Musk said.
–With support from Sarah Frier.