Buzz Update Explanator: What to do with Twitter’s ‘poison pill’ TOU

Buzz Update Explanator: What to do with Twitter’s ‘poison pill’

 TOU

Explanator: What to do with Twitter’s ‘poison pill’

Twitter is trying to thwart billionaire Elon Musk’s takeover attempt with the “poison pill” – a financial tool that companies have been using against unsavory suitors for decades.

What to do with toxic pills?

The ingredients in each Poison Pill vary, but all are designed to give corporate boards an option to fill the market with newly created stock, making it more expensive to take over. This strategy gained popularity again in the 1980s when companies were publicly managed by corporate riders such as Carl Icon – now often referred to as “activist investors”.

Twitter did not disclose details of its poison pill on Friday, but said it would provide more information in an upcoming filing with the Securities and Exchange Commission, which delayed the public markets closing on Friday.

A San Francisco company plan is triggered if a shareholder accumulates 15 percent or more. Known as the CEO of electric car maker Tesla, Musk now owns nearly 9 percent of the company.

Can a poison pill be the talk of the town?

Although they are thought to help prevent unwanted takeovers, poison pills often open the door to further negotiations, forcing the bidder to strike a deal. If the high price makes sense to the board, a poison pill can be put aside along with the cruelty it provokes, paving the way for the sale to be completed.

True, Twitter has opened its door by insisting that its poison pill does not prevent its board from “engaging with parties or accepting a purchase offer” at a high price.

Adopting a poison pill often leads to lawsuits alleging that the corporate board and management team are using a tactic to keep their jobs against shareholder interests. These complaints are sometimes filed by shareholders who think the takeover offer is fair and who want to cash out on that price or through a bidder competing to buy.

How did Elon Musk react to the Twitter ad?

Musk, an amazing tweeter with 82 million followers on Twitter, did not immediately respond to the company’s poison pill. However, he said on Thursday that he was ready for a legal battle.

“If the current Twitter board acts against the interests of shareholders, it is as if they are violating their fiduciary duty,” Musk tweeted.

Musk has publicly stated that the $ 43 billion bid for Twitter is his best and last offer, but other corporate suitors have made similar announcements before finally making the move. With a fortune of $ 265 billion, Musk has pockets deep enough to boost his offer, although he is still working on how to finance the proposed purchase.

How has this defense worked in the past?

Takeover conflicts often merge into gamemanship, which includes poison pills and other stunts designed to make purchasing more difficult. The same thing happened at one of the largest and most captivating takeover dances in Silicon Valley history.

The two companies have been at loggerheads for the next 18 months, after business software maker Oracle made an unsolicited $ 5.1 billion offer for its small rival Peoplesoft in June 2003.

As part of its defense, Peoplesoft not only adopted the Poison Pill, but also empowered the board to fill the market with more shares, creating what is known as the “Customer Assurance Program”. If people sell the software over the next two years, the software licenses will create a maximum liability of up to $ 800 million for the purchasing company.

Despite a judge ruling in favor of Oracle, Peoplesoft received another aid when the antitrust lawsuit sought to block the US Department of Justice’s takeover.

Although the company ended selling to Oracle, Peoplesoft’s defense strategy paid off for its shareholders. Oracle’s final purchase price was $ 11.1 billion – more than double its original bid.

Published

April 16, 2022

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