Twitter’s board showed on Friday that it would not go quietly after Musk offered to buy the company.
Twitter is trying to thwart billionaire Elon Musk’s takeover of a “poison pill,” a financial tool that companies have used against unwanted suitors for decades.
On Thursday, Musk offered to buy Twitter with the revelation that came just days after the Tesla CEO announced he would no longer join the social media company’s board of directors.
He offered $54.2 per share of Twitter stock, describing the price as his best and final offer.
On Friday, Twitter’s board showed it was not going quiet, saying that any acquisition of more than 15 percent of the company’s shares without its approval would lead to a plan to flood the market with shares, thus making buying more difficult.
What toxic pills are they supposed to do?
The components of each toxic pill vary, but they are all designed to give corporate boards an option to flood the market with so much newly created stock that it becomes an expensive acquisition.
This strategy took off in the 1980s when publicly owned companies were being chased by corporate invaders like Carl Icahn – now described more frequently as “active investors”.
Twitter did not disclose details of the toxic pill on Friday, but said it would provide more information in an upcoming filing with the Securities and Exchange Commission, which the company postponed due to the public markets being closed on Friday.
Musk currently owns approximately 9 percent of the shares.
Could a toxic pill be a negotiating ploy?
Although they’re supposed to help prevent unwanted takeovers, poison pills often open the door to further negotiations that can force the bidder to mollify the deal.
If the high price makes sense on the board, the toxic pill can simply be discarded along with the sharpness it provoked, opening the way for the sale to be completed.
True, Twitter has left its door open by asserting that its toxic pill will not prevent its board from “handling parties or accepting a takeover offer” at a higher price.
Adoption of toxic birth control pills often leads to lawsuits alleging that the company’s board of directors and management team use this tactic to keep their jobs against the interests of shareholders.
How did Musk react to the Twitter ad?
Musk, who has 82 million followers on Twitter, had no immediate reaction to the company’s toxic birth control pill.
But on Thursday, he signaled his willingness to fight a legal battle.
“If Twitter’s current board of directors takes actions that are contrary to the interests of shareholders, they will be in breach of their fiduciary duty,” Musk wrote on Twitter. “The responsibility they will have will be enormous in scale.”
Musk has publicly said his $43 billion bid is his best and finally Twitter offer, but other corporate suitors made similar statements before eventually upping the ante.
With an estimated fortune of $265 billion, Musk appears to have pockets deep enough to raise his bid, although he is still working out how to fund the proposed purchase.
Musk also questioned Saudi Arabia’s role at Twitter Inc after Saudi Prince Alwaleed bin Talal tweeted his opposition to the billionaire businessman’s offer to buy the social media company.
On Thursday, the prince tweeted that Musk’s offer did not come close to Twitter’s “core value”.
“Being one of the biggest long-term shareholders of Twitter, @Kingdom_KHC & I decline this offer,” the prince said, referring to his Saudi Arabia-based Kingdom Holding Company.
Musk responded to the tweet, asking about the size of Twitter, directly and indirectly, owned by Saudi Arabia.
“What is the Kingdom’s view of freedom of press expression?” Musk added.