What is Twitter’s ‘poison pill’ and what is it supposed to do?

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What is Twitter’s ‘poison pill’ and what is it supposed to do?

Twitter is trying to stop billionaire Elon Musk from taking over the company with “poison pills”, a financial tool that companies have used for decades against unsolicited suitors.

Musk offered to purchase Twitter on Thursday. This was just days after Tesla CEO Elon Musk said that he would not be joining the company’s board.

He offered $54.2 per Twitter share, calling it his final and best offer.

Twitter’s board stated that it wouldn’t go quietly on Friday. Any acquisition exceeding 15% of its stock without its approval would set off a plan to flood the market with shares, making it much more difficult to a buyout.

What are poison pills supposed to do?

Although the ingredients of each poison pill are different, they all have one thing in common: They allow corporate boards to flood the market so that there is no need to take over.

This strategy was popularized in the 1980s when corporate raiders like Carl Icahn were hounding public companies. It is now more commonly called “activist investors”.

Twitter didn’t disclose details about its poison pill Friday but stated it would in a future filing with the Securities and Exchange Commission. This was delayed by Friday’s close of the public markets.

Musk currently owns a 9 per cent stake.

Is a poison pill a negotiation tactic?

Poison pills are meant to prevent unsolicited takeovers, but they can also open up the possibility of further negotiations that could force bidders to sweeten the deal.

If a higher price is deemed reasonable by the board, the poison pill can be thrown out with anger, clearing the way for a sale.

Twitter did as it is supposed to by stating that Twitter’s poison pill would not stop its board from “engaging with Parties or accepting an Acquisition Proposal at a Higher Price.”

A common outcome of a poison pill is lawsuits alleging that corporate boards and management teams use this tactic to protect shareholders’ interests.

What did Musk think of Twitter’s announcement?

Musk, who has 82 million Twitter followers, did not immediately react to the poison pill.

However, he stated that he was willing to fight a legal battle on Thursday.

Musk tweeted, “If the Twitter board takes actions against shareholder interests, they would be violating their fiduciary obligation.” Musk tweeted, “The liability they would assume would be immense in scale.”

Musk publicly stated that his $43bn offer is his final and best offer for Twitter. However, other corporate suitors have made similar statements before eventually raising the ante.

Musk, who has an estimated fortune of $265bn, would have enough money to raise his offer. However, he is still trying to figure out how to finance the purchase.

Musk also questioned Saudi Arabia’s involvement in Twitter Inc after Prince Alwaleed bin Talal of Saudi Arabia tweeted his opposition to the offer by the billionaire entrepreneur to purchase the social media company.

The prince tweeted that Musk’s offer was not up to its “intrinsic worth” on Twitter.

“Being one the largest & longest-term shareholders Twitter, @Kingdom_KHC & I decline this offer,” said the prince, referring specifically to the Saudi Arabia-based Kingdom Holding Company.

Musk replied to the tweet asking how much of Twitter was owned directly or indirectly by Saudi Arabia.

Musk said, “What is the Kingdom’s view on journalistic freedom to speech?”

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