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Twitter Board Adopts ‘Poison Pill’ to Stop Elon Musk From Increasing His Stake

Twitter Board Adopts ‘Poison Pill’ to Stop Elon Musk From Increasing His Stake

It is basically an attempt to stop a hostile takeover.

The Twitter board of directors adopted what is called a poison pill to stop Elon Musk from increasing his stake in the company after he offered to buy it.

The poison pill will make it hard for him to own more than 15%:

Poison pills, also called shareholder-rights plans, are legal maneuvers that make it hard for shareholders to build their stakes beyond a set point by triggering an option for others to buy more shares at a discount. They are often used by companies that receive hostile takeover bids to buy themselves time to consider their options.

Twitter Inc. said in a statement that the rights plan doesn’t prevent the company from engaging with potential acquirers or accepting a takeover bid if the board determines it is in the best interest of shareholders.

The board also said the 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.”

The plan expires on April 14, 2023.

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Comments

Time for Musk to go to Plan B.

I guess that’s a no.

Close The Fed | April 15, 2022 at 3:14 pm

Hm. Interesting the board has the right to save its own skin. Against the shareholders’ financial interests.

Oughtta be a law….

    henrybowman in reply to Close The Fed. | April 16, 2022 at 12:41 am

    Poison pills can bite you in the ass.
    One company I worked for had a poison pill that immediately vested all outstanding unvested employee shares if the company was acquired.
    Then these same geniuses chose to invite a leveraged acquisition with the pill still in place.
    Woops.

So the plan is to dilute the shares outstanding. Yeah, forcing the price to crash will save them.

So far, Musk own 9% as does Morgan Stanley who at this point would certainly jump at Musk’s $54.20 bid to pocket a certain 40%+ profit. That totals 18% in favor. The Saudi’s are holding out for a higher bid for their 5.2%. Jack Dorsey? I imagine the other investment firms would be in favor, those who didn’t sell out last year or since.

I doubt this poison pill will work. A certain profit vs certain major loss?

The above accounts for 23% of shares with 18% accepting the bid, 5% against for now, leaving 77%. Assume half are for accepting and that brings Musk up to about 60-61% with the likelihood of the investment banks throwing in their shares too. So it boils down to how much money are the nays willing to risk?

I expect the next round will be a proxy war with Musk winning in a rout.

    I’m not versed on this, but what is stopping Musk from using a proxy like a mutual fund 98% based on Twitter as a go-around?

      I don’t understand the question.

      JohnSmith100 in reply to Andy. | April 16, 2022 at 9:28 pm

      In other words, work with third parties to acquire stakes, and eventually consolidate them.

        That’s one of the options I discuss below. The most logical and ripe allies would be the mutual fund companies and several already own sizable positions. All it would take would be for Morgan Stanley and Vanguard to join Musk in building their positions to 14.9% each. That takes us to 44.7% right there. Goldman Sachs might then jump into the fight and buy back the shares they dumped last year. Same with Fidelity. The problem is that they have already satisfied their fiduciary responsibilities by dumping a lousy investment. But they might be enticed to jump in and carry the day to save shareholder capitalism. This is a bigger fight than just who controls Twitter. It could set the stage for the destruction of our capital markets if shareholder interests are subordinated to government mandates (ESG). I don’t know how to invest under fascism nor under communism. Investing would just dry up for lack of opportunity. No one trusts the government to manage money. Investing would just become another tax…. like health insurance e.g.

        There is plenty of reason to hope for white knights to step up out of the shadows here. Lots of wealthy investors are probably waking up finding themselves staring into the abyss. This could be the end for more than just Twitter. That’s why it wouldn’t shock me if even Jack Dorsey stepped in to fight his board members. Going from well off to insanely wealthy and back to well off when they can stop it? This isn’t a board game. The game pieces are real human beings with human traits and emotions. Anything can happen when everything is at stake.

Musk must have known this was a possibility. Looks like shares are slightly down so far today (at the moment). That argues that they should take Musk’s bid. But I don’t think the folks on Twitter’s board are motivated entirely by money. If they were, they would have taken it first without the argument.

He can probably ask the SEC to step in or sue to make them do it, but the folks at the SEC don’t like him any more than the Twitter board does.

    I doubt the board members own enough shares to be active players. Institutional ownership is 77% with Morgan Stanley and Vanguard owning 9% each. The only one I would be is against Musk is Blackrock. I’m guessing enough of the rest want to make money on the way out.

    https://www.nasdaq.com/market-activity/stocks/twtr/institutional-holdings

    I would also expect that Musk is talking to the institutional owners. You have to wonder if the SEC is going throw shade at them. If they want out and to not lose money, they only have one option. I would think the SEC would back down. But Congress? The Uniparty committed to keeping Trumpsters from winning at all costs? This could really blow up into a major constitutional catastrophe if the adults don’t show up in Washington.

    So far YTD, all but one board member have sold about one million shares. SLTA V Group llc cancelled those sales with 2 purchases totalling 1,400,000 shares. They have been selling for at least a year. So now they are being offered new shares at a discount? Tough row to hoe with the 15% cap and stock crashing as more and more shares are sold at a discount.

    https://finviz.com/quote.ashx?t=TWTR

    Evil Otto in reply to irv. | April 15, 2022 at 4:16 pm

    I think it’s about control. Having Twitter turned into a true free speech platform, and worse yet allowing the dreaded Trump back on is worth more to them than the stock price. I hope the inevitable investor lawsuits eat them alive.

Remember the Muslim bomb makers who accidently blew themselves up while making bombs?

The same applies to people making poison pills. Need to be careful lest you accidently poison yourself.

Moon Battery | April 15, 2022 at 3:43 pm

So we live in a world where it’s fine for the Saudi Prince Talal to be one of the biggest shareholders of Twitter, but if a conservative wants to buy stock the company has to pull a poison pill…….

    Rush Limbaugh was too controversial to be part owner of the Rams… more than a decade ago. We’ve lived in that world for quite a while. I personally disengaged with the NFL after that event, knowing full well they hate me and my values, Rush was the face they assigned to those values.

Okay, so shareholders have buy rights to buy additional shares at a discount in future(discount to what? current market price?) with the goal of fighting off the bid that made the price go up in the first place? Those rights expire one year from now. All that does is prevent the price to go up. More reason for a shareholder revolt via proxy war.

Steven Brizel | April 15, 2022 at 4:45 pm

This shows how desperate Twitter is desiring to mAintain its raison de etre of censorship and suppression of freedom of speech

Colonel Travis | April 15, 2022 at 4:50 pm

Why can’t he buy just under 15%, then start buying shares after that incrementally at this now-discount until he is majority owner?

    Olinser in reply to Colonel Travis. | April 15, 2022 at 5:22 pm

    The financial jargon is a bit confusing, but the point of this plan is that it offers NEW shares to existing shareholders at a discount, reducing the total % that Musk has bought.

    Think of it like this. If there are 1 million shares currently (there’s far more, but for the sake of math lets do it like this), and Elon buys 200k out of 1 million, giving him 20%. The existing shareholders can then exercise this option, and lets say a total of 200k more get bought by shareholders.

    Now Elon owns 200k out of 1.2 million shares, which means now he only owns 16.67% of the company.

    The point is that this is HIDEOUSLY bad for shareholders and the company, and it’s ONLY PURPOSE is to prevent somebody from buying them out.

    Because this is literal inflation, doing this will absolutely TANK the value of existing shares, which is why this is referred to as a ‘poison pill’ – they’re intentionally diluting and tanking their stock to keep him from buying them out.

    Even putting this plan forward has tanked shares, since the start of the day shares have already gone down 10% before it’s even executed.

    This is a financial disaster for Twitter.

      Colonel Travis in reply to Olinser. | April 15, 2022 at 6:00 pm

      Thanks. This just reinforces how stupid the people who run Twitter are. The Cause matters above all else, which inevitably will destroy itself.

        AF_Chief_Master_Sgt in reply to Colonel Travis. | April 16, 2022 at 9:14 am

        Sorta like the Democrats destroying America right now.

        They would rather rule over the rubble than to allow America to be free and prosperous.

      AnAdultInDiapers in reply to Olinser. | April 16, 2022 at 7:08 am

      Sounds like he needs to buy the shares now at their discounted price, before the poison pill gets voted in – the board surely can’t arbitrarily offer discounted shares to “all but one” shareholder, it’ll need to go to a shareholder vote.

      So he has a window of opportunity..

If Musk really wants Twitter He will buy 15% and then have his wife buy 15% and then some other close person at 15% where they start replacing board members. Soon the company is in Musk hands with his rules and his CEO.

    The full details have not been released yet while they await the release by the SEC. But if I understand this correctly, every time someone (0r is it just Musk?) reaches 15%, everyone else has the right to double their shares at a sharp discount (not yet disclosed). While the triggering shareholders (or Musk only?) lose 50% of the value of their holdings, the other shareholders also lose because they dilute the value of their own shares. Musk’s 15% is cut down to a lower percent. So everyone loses. I believe those who don’t exercise their rights lose in line with Musk so his 15% would probably not be reduced as much if no one or few exercised.

    Shareholders get screwed no matter what unless the board agrees to sell to Musk so the board is probably trying to squeeze a higher price from Musk. So unless Musk ups the price his best move might be to do nothing and let the suck of what the board is doing sink in with the shareholders. How can this not result in a shareholder lawsuit or lawsuits? Twitter is trying to buy time but all they will be accomplishing is to really piss off their shareholders.

      BTW, since 77% of shares are held by institutions, I expect that is where the lawsuits will come from.

      They could literally make the shares available for 1 penny and then offer a 1 time, 1 penny dividend on the stock.

      I suspect doing a 2 for 1 split on everyone’s stock but Elon’s was unfeasible, so this is the work around.

        How long does it take to prepare a lawsuit? I am expecting a ton of them. Looking to the mutual fund companies to lead the way. This is the knife’s edge case for perverting shareholder capitalism into stakeholder capitalism, the “big reset” where “no one owns anything”. Will the mutual funds defend their shareholders or will they surrender to ESG fascism? Maybe this will wake everyone up to what is going on. Let’s see what the SEC and DOJ do.

Interesting angle that had not occurred to me…

“Cernovich @Cernovich · 1h

Hi @elonmusk, have you considered that Twitter is blocking your offer because they are afraid you’d obtain documents proving they shadow ban and censor, which would contradict sworn testimony made before Congress?
This could be an Enron type scenario you’ve uncovered.”

https://twitter.com/Cernovich/status/1515068572493496322?s=20&t=FJKUAEiyinuO34bDl6Z1zQ

    daniel_ream in reply to JohnC. | April 15, 2022 at 7:33 pm

    >This could be an Enron type scenario you’ve uncovered

    No, Enron involved actual financial fraud that actually hurt real people by costing them real money. Twitter declining to provide free billboards to certain people isn’t even small beer by comparison.

    Sure, lying to Congress is technically a crime but good luck getting anyone to prosecute that.

    Soi-disant conservatives really, really need to get over their addiction to free shit and stop acting like Communist millennials.

      Olinser in reply to daniel_ream. | April 15, 2022 at 9:51 pm

      Begone, troll.

      Claiming that it’s ‘free shit’ for somebody to offer to buy a company for SIGNIFICANTLY ABOVE current market price sure as hell isn’t ‘free’.

      Go back and get some new talking points.

        AnAdultInDiapers in reply to Olinser. | April 16, 2022 at 7:14 am

        The ‘free shit’ to which he referred was the publicity garnered by posting on Twitter. Trump for instance benefited from this, and didn’t pay Twitter for it.

        What he’s missing is that expecting to be able to speak in public (something Twitter heavily influences due to its reach and the number of incompetent/corrupt journalists that treat it as gospel) is not an addiction to free shit.

        The lying to congress piece isn’t likely to be the big reveal. The significant collusion between Twitter and certain political interests however.. very possibly multiple prosecutions for breaches of campaign law.

        Imagine every second message in everybody’s twitter feed being “Sorry we colluded to fix the election for…”

          Trump nor anyone else pays Twitter for their “free” publicity. Twitter makes money by the advertising revenue such “free” traffic makes possible. Nothing is free in life. Someone is ALWAYS paying for everything.

          healthguyfsu in reply to AnAdultInDiapers. | April 16, 2022 at 1:02 pm

          Yes this is not free shit.

          Content creators are the product so their “free” platform is actually using them to make money instead.

          It’s no different than youtube or even google search, just a little more succinct.

          Calling anything that twitter allows “users (aka products)” to do “free” is complete ignorance of what made companies like google and facebook into techopolies at the top of the NASDAQ.

          What do you think twitter operates with, monopoly money?
          The tweeters are the product.

          Really, change your diaper. Stupid is filling it up.

    JohnSmith100 in reply to JohnC. | April 16, 2022 at 9:42 pm

    I love it, I used to put a lot of effort in uncovering dirt on both companies and the people running them, and then helping them understand what it meant to live in interesting times.

    I was quite good at it, but never had Musk’s resources. I bet he can really work them over. Canceling those who felt entitled to cancel others.

I gotta believe that someone as smart as Musk thinks at least a couple of moves ahead.

Popcorn is ready!

    Andy in reply to Romey. | April 15, 2022 at 7:42 pm

    He already owns them. They don’t know it yet nor how he did it.

    They are really losing sleep over it, a fact that makes this all the sweeter.

    To be honest- I could gut twitter for a fraction of the cost. Remember at any company 10-20% of the people represent 80% of the productivity. Give them offers they can’t refuse and it all falls apart.

    Do it strategically and hackers will do the rest.

      JohnSmith100 in reply to Andy. | April 16, 2022 at 9:52 pm

      You don’t even have to give them offers; you just act like a super headhunter behind the scenes. Identify key people in engineering, product development, sales and so on. When they start getting lots of interest, most will decide they are worth more and move. Once you plant the seed of discontent, most bail. I used this tactic a great deal.

    Here’s an idea. Musk buys up to 14.9%. Vanguard extends their buying to catch up with Musk at 14.9%. Then Morgan Stanley raises their 9% to 14.9%, No poison pill triggered and now, assuming the investment firms honor the fiduciaries dutied, the Musks control 44.7%. Jack Dorsey himself would be in a position to save the company and his wealth by joining in with his 5-6%. Not likely but money talks. If just one or two more mutual fund companies join up with Musk, the board has lost. Do they really want a proxy war that they will certainly lose quickly? Do they really want the law suits to begin immediately? Musk and his allies walk away richer and it’s on to the next woke company getting clobbered in the market. Facebook? MGM?

    It would certainly send a cold chill up the spine of the Masters of the Universe should their wokism fail in the market and in the courts.

      healthguyfsu in reply to Pasadena Phil. | April 16, 2022 at 1:03 pm

      Putting ANY faith in Jack Dorsey is a mistake. I know you said not likely, but that goatface is not your friend.

        I have no doubt that Dorsey is not a friend. I have no faith in Dorsey for anything. But Dorsey can’t possibly be feeling confident about maintaining his wealth right now. Sure his main focus these days is his other company, Block so he won’t be broke, But he stands to lose over $5B just from his shares going to zero alone. He is also PERSONALLY liable as a board member, aside from the board’s own risk, of being sued by shareholders for all he is worth. You can say what you want about how crazy these wokesters are but when it comes to this kind of personal cost, nothing is for certain.

        Dorsey is looking for a way out. Bet on it.

It’s all fun and games until they get to discovery.

Can Twitter’s board really do this? If you can adopt a poison pill at any time, even after a purchase offer has been filed, there would be no reason for a board to adopt one in advance. Pass an auto-expiring 30 day pill and keep voting to extend it until the disfavored suitor gets the hint.

Or heck, why not adopt a poison pill that explicitly names the suitor? You can always add names, and you can then take a lower bid from a favored suitor, on the basis that it’s worth more net than Elon’s poisoned bid.

    arbiter9605 in reply to randian. | April 15, 2022 at 11:33 pm

    Sadly yes they can cause board is elected position think of it like congress although they can appoint who ever they want when they want but shareholders could vote to remove them.

Who’s to say many, if not a majority, of the shareholders wouldn’t buy the discounted shares then side with Musk on the takeover, giving him more than enough muscle to pull it off?

    arbiter9605 in reply to Reno232. | April 15, 2022 at 11:35 pm

    Easier path just get 3 other people that along with musk each by 13 % so pill strat can’t go off and you got 4 people that own 52% of the company boom fire the CEO and everyone on the board.

      arbiter9605 in reply to arbiter9605. | April 15, 2022 at 11:36 pm

      True irony and comedy would be get Trump to come in and say “you’re fired”

      The big issue is whether the other major shareholders, largely investment firms, will wake up. They will either fulfill their own fiduciary responsibilities to their own shareholders and back Musk or this will be the death of shareholder capitalism. Klaus Schwab: “You will own nothing and be happy”.

      I think Musk caught everyone off guard and they weren’t ready to so quickly be on the defensive. We are about to find out what America is made of. Is the moral character to fight fascism still there when we are fighting domestic enemies? Or is it just an oath that is meaningless since so many don’t believe in God anymore? Where do our rights come from again? There is a lot of waking up to do by everyone across the board.

MoeHowardwasright | April 16, 2022 at 5:40 am

The board will fight this not because of any previous congressional testimony. They will fight because they have to prevent the public at large from knowing conclusively that our government is the largest backer of twatter. You don’t hear Dorsey speaking about Musk. None of the other board members are even being interviewed about this issue. Not even a “no comment”. As my mother used to say, “silence is deafening isn’t it”.

I think people are missing a couple of points.
1). Notice the experation date of the poison pill. It’s after the midterms. The main reason they are fighting off Musk is the Board fears free speech and wants to continue censoring “wrong think”

2). Shareholder lawsuits. It only takes one and the worlds richest man owns nearly 10% of the stock. Going to be a very bad day picking this fight with someone who’s net worth is greater than your entire company if he decides to go to the end with you. No matter how good your lawyers are, Musk can hire 10 even better

How is this not a violation of their fiduciary duty to the shareholders?

I guess the Twitter board and the Oberlin board are interchangeable.

This is a question for anyone who understands securities law —

This ‘poison pill’ (and all poison pills?) works by giving Twitter stockholders (but not the stockholder attempting the hostile purchase) the right to buy additional stock at a below-market price[1]. “A key proviso [of this poison pill] is that ‘the person, entity, or group triggering the rights plan’ will not be able to exercise these rights”.

Question 1: Doesn’t the board’s fiduciary duties extend *equally* to *all* stockholders? Ie. the execution of the poison pill acts prejudicially against the value of the stock owned by the party attempting to execute the takeover by diluting the value of their holdings.

Question 2: If Twitter’s board implements the poison pill and Musk terminates his takeover attempt and sells his Twitter holding and the price of Twitter’s stock declines to its value prior to Musk’s purchase then isn’t Twitter’s board exposed to a multi-billion dollar shareholder lawsuit?

Ref. https://www.investopedia.com/twitter-adopts-shareholder-rights-plan-5226072

[1] Can anyone parse this “Each right will entitle its holder to purchase, at the then-current exercise price, additional shares of common stock having a then-current market value of twice the exercise price of the right.”

I am really ignorant on this issue. How can a company issue stock AND set its price AND say who can but them? If they can do this, why doesn’t the board issue ten gazillion shares at a penny a share and have a proxy buy them all. Then the proxy would own and control the company. Why is there a SEC if they can’t make them play fair?

    Barry in reply to oldvet50. | April 17, 2022 at 6:51 pm

    The game is rigged by the government. What they are currently doing is trying to keep you from understanding how deeply it’s rigged.

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