The social media company has adopted a “poison pill” defense that makes it difficult for Musk or any other investor to buy Twitter without the board of directors’ approval. Musk, who currently owns about 9 percent of the company, last week disclosed an offer of about $43 billion, or $54.20 per share.
Twitter’s next likely move is to formally reject Musk’s offer, although it could negotiate. Musk has a number of options which also include talks with the board, sweetening his offer, or even triggering the poison pill, which experts say would be disastrous for the company.
In a regulatory filing on April 18, Twitter’s board said it approved the defensive move to protect the company from “coercive or otherwise unfair” takeover tactics.
The board is leaving open the possibility of negotiating with Musk or another suitor. The filing says the shareholder rights agreement should not interfere with any merger or offer approved by the board.
Although he said his offer was “final,” Musk may have to raise his bid to satisfy other shareholders. A Saudi prince who is among Twitter’s major shareholders scoffed at the offer last week in a tweet. Al Waleed bin Talal said he didn’t believe $43 billion is close to Twitter’s value given its growth prospects. Twitter shares hit an all-time high of $77.63 in March 2021.
The poison pill essentially would spell the end of Twitter if Musk or another investor acquires 15 percent or more of the company, said James Cox, a professor of corporate and securities law at Duke University.
Shareholders who exercise the rights and buy preferred stock at $210 would get $420 in Twitter stock or assets, he told AP.
That would be more than Twitter can afford to pay, and likely would send the company into receivership, he added.
“You want to create an event that Musk would never want to trigger because it would be the death of Twitter,” Cox said. He predicts that Musk and the board will negotiate, at least for a while, adding that no investor has ever crossed the line to activate a poison pill.
If Musk triggered the poison pill, he risks wiping out much of the money he has invested in Twitter because his stake would be diluted, said Columbia University law professor Eric Talley. “You want to deter someone from deliberately triggering the poison pill,” Talley said.
Shares of Twitter closed April 18 up 7.5 percent at $48.45, still $5.75 shy of Musk’s offer. That’s a sign that investors are skeptical of whether Musk can pull off the deal.
Hurriyet Daily News