A poison pill incorporating terms is when a company adapts to selling its shares to existing shareholders at a discounted rate. As Elon Musk recently made a filing on how he should take over 100% of Twitter, it appears that Twitter finally responded. In a recent statement, it stated that “its Board of Directors has unanimously adopted a limited duration shareholder rights plan. … The Board adopted the Rights Plan following an unsolicited, non-binding proposal to acquire Twitter.”
With this move, when the existing stakeholders take over the shares, Musk will not be able to purchase more than 15% of the stake. It dilutes the ability to buy the company. Earlier this month, Musk announced that he had a 9.2% stake on Twitter. After which he said that he was joining the company’s board of directors, with which he began proposing changes to the platform. He also added that the headquarters should be changed to a homeless shelter.
Musk repeatedly stated that Twitter is “failing to adhere to free speech principles.” He also proposed creating a rival platform where “free speech and adhering to free speech is given top priority.” Some parts of the details were discussed in his recent talk at the TED2022 conference. Where he also talked about adding the “edit” button on Twitter.
The company stated, “The Rights Plan will reduce the likelihood that any entity, person or group gains control of Twitter through open market accumulation without paying all shareholders an appropriate control premium or without providing the Board sufficient time to make informed judgments and take actions that are in the best interests of shareholders,”
This is not the only company to have adopted such strategies. Netflix used the poison pill back in 2012. Pizza chan Papa John’s also adopted the same strategy in June 2018, preventing outsed founder John Schnatter from gaining control over the company.
However, Musk stated that if Twitter’s actions are not aligning with the shareholders’ interests, the company would be breaching its fiduciary duty.
If the current Twitter board takes actions contrary to shareholder interests, they would be breaching their fiduciary duty.
The liability they would thereby assume would be titanic in scale.
— Elon Musk (@elonmusk) April 14, 2022
Wedbush’s Dan Ives said, “Twitter going down the poison pill path is a predictable defensive measure for the Board to go down that will not be viewed positively by shareholders given the potential dilution and acquisition unfriendly move,”
At the TED conference, Musk disclosed that there is a Plan B if Twitter will not agree to the takeover. It remains unclear as to whether Musk is up to a rival company or some other strategies.
