Daily Column – 16th April 2022

Twitter put in place a “poison pill” plan yesterday to stop Elon Musk from taking over the company. The goal of the “shareholder rights plan,” as it’s called, is to make it look like a millionaire would buy Twitter. New York Times: A securities expert told the paper that “even for him, it would be a big loss.”

In medicine, what is a poison pill?

In this strategy, the name comes from the pills that spies would take when they were captured. The strategy works like this: A company intentionally lowers the value of its shares by giving its shareholders (except the person who wants the company) the chance to buy more at a discount. What’s the point? Make the company less attractive, or even financially unfeasible, to buy.

Netflix and Papa John’s have used the tactic before to keep investors Carl Icahn and Papa John’s founder John Schnatter, respectively, from taking over. To put it in simple terms, Twitter’s poison pill plan is going to look like this:

Anyone who owns more than 15% of Twitter will have the chance to buy more shares for less money.

People buy shares like they were half-off Reformation dresses. This makes the shares less valuable, so the 15% shareholder has to buy even more to keep their stake or even exceed it.

Musk already owns 9.2% of Twitter, and he wants to buy the rest for $54.20 per share. But if and when Musk gets 15% of Twitter’s stock, his bid will go through the roof.

Not everyone can buy Twitter, but it doesn’t mean no one can buy Twitter at all.

Just because they can’t buy it in a hostile way by grabbing shares on the open market doesn’t mean they can do it. When Twitter buys a company, it has to be approved by the company’s board first. A provision that Musk has said he doesn’t like.

On Twitter yesterday, he asked whether his buyout offer should be decided by “shareholders, not the board.” Do you think so?

Expect Musk to fight back (and tweet about it) in the next few days and weeks. Twitter’s poison pill plan is a strong defence against him taking over. Keep up with Elon Musk!

You can do extra work on the takeover’s payment logistics, billionaire-made “events,” the chances of Musk succeeding, and the former CEO of Reddit Yishan Wong’s thoughts.

Leave a Comment