Twitter adopts "poison pill" plan to counter Elon Musk's bid
Twitter on Friday said it adopted a "poison pill" plan that could block billionaire Elon Musk from significantly increasing his stake in the social media company. The counter-measure comes a day after Tesla CEO Musk unveiled a $43 billion hostile offer for Twitter.
In a statement, Twitter said that the new plan will reduce the chances that any person, group or company could take control of Twitter through purchases of stock on the open market without paying "an appropriate control premium" or giving the board enough time "to make informed judgments."
Musk, who earlier this month disclosed he owns a 9.2% stake in Twitter, proposed in a regulatory filing on Thursday to buy all of the company's outstanding common stock for $54.20 per share. But investors signaled they viewed the offer with skepticism, with the stock actually closing below its price from the prior day, at $45.08 per share.
One major investor has already come out against the offer. Saudi Arabia's Prince Alwaleed bin Talal, who controls more than 4% of Twitter according to Bloomberg News, said on Thursday that "I reject" the offer.
In his offer letter, Musk said he wants to take the company private and that added that his bid "is not a threat." However, he added that if he is unable to purchase Twitter, he "would need to reconsider my position as a shareholder."
What is a "poison pill"?
A so-called poison pill plan is designed to give a company that's a target of a hostile acquisition more leverage in the situation. It emerged 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 shares, making it more difficult for Pickens to buy a controlling stake, according to Corporate Finance Institute.
In Twitter's case, the plan will go into effect if any person or group buys at least 15% of Twitter's stock in a purchase that is not approved by its board.
If triggered by such a purchase, the plan would give other shareholders the right to buy additional shares of Twitter's stock at a discount, which would then dilute the value of Musk's shares. That would effectively reduce the control that Musk could gain through share purchases.
Twitter said that the plan doesn't prohibit its board from accepting an acquisition proposal if it believes "it is in the best interests of Twitter and its shareholders."