Immediate Notice 1:39 P.m. On 15 April 2022. Edt:
This shareholder rights plan, or “poison pill,” was adopted by Twitter’s board of directors on Friday and will allow shareholders to purchase discounted stock in the event that a business or individual acquires more than 15% of the company without the board’s approval. 1
If a corporate board is concerned about a hostile takeover by another company or an investment group, it may implement a shareholder rights plan. By offering to dilute an activist buyer’s holding through discounted share sales to other shareholders, these strategies discourage the accumulation of firm stock above a certain level.
The strategy’s “poison pill” moniker comes from the fact that the purpose is to make share acquisitions over the shareholder rights plan’s limit unpleasant. 2
After Carl Icahn bought a 10% investment in Netflix in 2012, the firm’s board enacted a shareholder rights plan to prevent him from taking over the company. It was established in the poison pill that other shareholders might buy two shares for one if Netflix made a 10% acquisition, merged with another company, or sold or transferred more than 50% of the company’s assets. 3
Shareholder Rights Plans Have Many Benefits
- As hostile takeovers began shaking up corporate boardrooms in 1982, shareholder rights plans proved useful as a delaying strategy, but they are rarely the long-term answer to activist pressure or merger interest.
BREAKING: Twitter, in a statement, said its board of directors has unanimously adopted a “poison pill” defense in response to Tesla CEO Elon Musk’s proposal to buy the company and take it private. https://t.co/GU6ktgIDF5
— The Associated Press (@AP) April 15, 2022
- A poison pill defence could enable a company that has seen a short-term decrease in its share price to avoid a vulture bid from a potential acquirer who wants to take advantage of the discount. As the COVID-19 pandemic spread, hundreds of US corporations implemented shareholder rights programmes in response to the market downturn. 4
Shareholder Rights Plans Have Their Drawbacks
- A shareholder rights plan is likely to lower a company’s share price in the short term by deterring a motivated buyer from purchasing more stock.
Disadvantages of a Shareholder Rights Plan
- poison pills can also prevent shareholders from removing entrenched and failing firm managers.
- That’s good news because a new board can remove a poison pill from a company’s stockholders’ rights plan if it decides to do so during a proxy contest.
- Due to the fact that poison pills restrict the trading of a company’s stock and discriminate against activist buyers, they usually require reason and frequently have sunset provisions.
- For activists and potential acquirers, shareholder rights programs cannot undo the gains made prior to their implementation.
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Breaking News: Twitter rebuffed Elon Musk’s takeover bid with a so-called poison pill that would flood the market with new shares if he buys 15% of its stock. Musk currently owns more than 9%. https://t.co/x8IsysIFp0
— The New York Times (@nytimes) April 15, 2022
Is Twitter Poison Pill Good for Shareholders?
The poison pill was traditionally seen as a last-ditch effort to thwart a takeover since it dilutes the value of a company’s shareholders and increases the cost of a possible acquisition.
Twitter Has Adopted a ‘poison Pill’ Defence Against Elon Musk’s Acquisition Attempt.
- The American city of Washington Shareholders of Twitter can now purchase extra stock in the company in order to counter Elon Musk’s $43 billion hostile takeover proposal.
- Musk’s idea confronts a number of unknowns, including the possibility of rejection and the difficulties of raising the necessary funds, but if completed, it might have far-reaching effects on the social network.
- This so-called “poison pill,” or shareholder rights plan, has been authorized by Twitter’s board of directors as the battle for control of the social media network intensifies.
- With the Rights Plan in place, Twitter hopes to prevent any corporation, person, or group from gaining control of the company through open market accumulation without paying all shareholders an adequate control premium.
- With his “best and final offer,” Musk sent shockwaves across the tech industry on Thursday, citing the promotion of free speech on Twitter as an important reason for his “best and final offer.”
- Shares of Facebook were valued at $43 billion by the world’s richest person in a filing with the Securities and Exchange Commission that was made public on Thursday, according to a report.
- While Musk admitted to having a “plan B” at a conference in Canada that he was “not convinced” would succeed, he refused to comment on it in the filing. Musk did remark, however, that if he were rejected, he would consider selling his shares.
- Earlier this week, Tesla CEO Elon Musk revealed that he had purchased a total of 73.5 million shares of Twitter stock, or 9.2 percent of the company’s common stock.
- As long as a bidder acquires 15 percent or more of Twitter’s outstanding common shares in an unapproved transaction, the board’s “rights plan” takes effect.
- There was no mention of finance, but it’s likely that Musk would have to borrow money or sell some of his Tesla or SpaceX stock in order to fund the acquisition.
- In spite of his declarations to the contrary, he indicated the firm would retain up to 2,000 stockholders, which is the maximum number permitted.
Instead of accepting Elon’s premium to the share price, Twitter’s board is planning to dilute the company by giving insiders a sweetheart deal. This is a blatant violation of fiduciary duty and should be illegal. https://t.co/irYHfsRWko
— David Sacks (@DavidSacks) April 15, 2022
- Some investors, like businessmen and Saudi Prince Alwaleed bin Talal, have already spoken out against the initiative.
- Even if the Tesla CEO’s offer will be taken into consideration by the board, Morningstar Research analysts estimate that Twitter’s acceptance is less than half-likely.
- On Thursday, Twitter’s share price fell about 2%.
- There are many unanswered issues after Tesla CEO Elon Musk’s announcement that he will no longer be an active user of Facebook.
- Over the weekend, he turned down an opportunity to join the board of directors.
- Even in Silicon Valley, which is known for disrupting businesses and transforming people’s lives, Tesla CEO Elon Musk breaks the trend.
- Tesla is one of Elon Musk’s many ventures, but he’s also involved in private space exploration and efforts to connect computers to the brain.