Twitter activated a Poison Pill strategy to prevent Elon Musk from buying it and the plan was unanimously approved by the board, know it full meaning
Twitter revealed Friday that it has implemented a limited-term shareholder rights plan, sometimes known as a “poison pill,” a day after billionaire Elon Musk proposed to acquire the business for $43 billion. The plan was unanimously approved by the board.
Explained Meaning Of Poison Pill Stratergy In Finance Activated By Twitter To Prevent Elon Musk From Purchase
The plan will run out on April 14, 2023. It was seen as a typical strategy for fending off a hostile takeover by diluting the shareholding of the organisation pursuing the acquisition.
The poison pill method has shown to be highly efficient in thwarting hostile takeover bids, which have decreased significantly since the 1980s when most corporations lacked the necessary safeguards.
Twitter is hoping to frustrate Elon out of his offer by imposing roadblocks like a post-offer poison pill. This is a defense tactic.
3 likely outcomes:
1. Twitter ends up in a shareholder derivative suit for breach of fiduciary duty for not properly evaluating the entire (1)
— BowTiedRanger (@BowTiedRanger) April 15, 2022
Twitter just adopted a poison pill in response to Elon’s $43B takeover bid.
Netflix did a similar maneuver in 2012 to thwart Carl Icahn.
Here’s how it played out:
— Trung Phan (@TrungTPhan) April 15, 2022
What Is Poison Pill Strategy?
A poison pill method allows current shareholders to buy more shares at a substantial discount, diluting the holdings of new, hostile investments. A shareholder rights plan is the formal name for it. The poison on Twitter will only be in effect for a year.
The shareholder who triggers the poison pill will be prevented from purchasing discounted stock. If a shareholder buys more than 15% of Twitter in a purchase that isn’t permitted by the board, the pill will be activated.
Why Twitter Has Activated Poison Pill Strategy?
Twitter claims that the move would allow investors to “realize the full value of their investment” by lowering the chances of a single person taking control of the firm without paying shareholders a control premium or giving the board extra time.
Musk’s bid is currently being considered by Twitter’s board of directors. It would only bring it to a vote of the company’s shareholders once it was approved.
Musk had previously stated that his current non-binding $43 billion takeover bid was partially reliant on expected funding completion.
Musk owns 9.1% of Twitter at the moment. If he increases his stake to more than 15%, Twitter’s defence plan will flood the market with fresh shares, which all owners except Musk will be able to purchase at a discount.
How It Will Prevent Musk From Buying Twitter?
With this step, Musk’s share would be diluted immediately, making the acquisition much more expensive. The plan also allows Twitter more time to consider Musk’s offer, potentially forcing him to directly negotiate with the company’s board of directors.
Twitter’s poison pill will not stop the board from “engaging with parties or accepting an acquisition deal” at a higher price, according to the company.
Meanwhile, Musk stated that the present Twitter board of directors would be breaking their fiduciary obligation if they took measures that were not in the best interests of the company’s shareholders. Musk may still take his bid straight to Twitter’s shareholders by initiating a tender offer, notwithstanding Twitter’s decision.
Most Twitter shareholders would be unable to sell their shares to Musk due to the poison pill, but the tender offer would allow them to express their support or opposition to Musk’s bid. A tender offer like this does not need board approval.
Musk could claim that Twitter is acting against the interests of its investors if he receives enough support for his tender offer.
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