Elon Musk's Poison Pill Problem with Twitter
Who would have thought that Elon Musk, the man with a two hundred and fifty billion-dollar fortune would be persona non grata in the finance world? Earlier this week, Mr. Musk made an offer of $43 billion offer to buy Twitter, which was regarded as “unwelcome” by Twitter’s board, which is now reportedly considering a “poison pill” strategy to make it more challenging for Elon Musk to acquire additional shares in Twitter and to increase his holding beyond the approximately 9.5% of the company which he already owns.
A “poison pill” is a type of shareholder’s rights plan used by a company’s board to prevent or discourage a potential hostile takeover. In common language, it is really anything that a company’s board does to make it more difficult for someone who intends to take over a company by acquiring more shares to affect that purpose. What the poison pill effectively does is put existing shareholders in a better economic position than that of the party trying to acquire new shares. Examples of poison pill provisions might be a Preferred stock plan, a Flip-in plan, a Flip-over plan, A Back-end rights plan, and a Voting Rights Plan.
With a 9.2 percent stake, Musk is one of the largest shareholders in Twitter and would be the likely intended target of any poison pill plan that is adopted by Twitter’s board. Interestingly, last week Asset management firm Vanguard Group disclosed that it now owns 10.3 percent of Twitter which makes it the largest shareholder. It will be interesting to see if how Elon overcomes Twitter’s poison pill threat. Stay tuned this is a developing story that is far from over.