November 29, 2022

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Twitter launched a toxic pill to thwart a $43 billion bid by Elon Musk

Twitter launched a toxic pill to thwart a $43 billion bid by Elon Musk

Twitter has launched a defense of its toxic pill acquisition to stave off a hostile $43 billion attempt from billionaire Tesla CEO Elon Musk.

In the first indication that the social media company plans to fight Musk’s bid, Twitter said Friday that its board of directors had unanimously adopted a one-year shareholder equity plan “to enable all shareholders to realize the full value of their Twitter investment.”

The board’s aggressive move, designed to prevent Musk from building a greater than 15 per cent stake in the open market, is likely to end the South African-born entrepreneur’s hopes of buying the social media company.

It comes as US private equity group Thoma Bravo has expressed interest in making Twitter private in what may be a competing offer to Musk, although sources said it was in a very preliminary stage and no offer had been made.

Thoma Bravo and Twitter declined to comment.

Musk said this week that his offer was “the best and last” adding that “if it is not accepted, I will need to reconsider my position as a shareholder.” Someone close to Musk said he wouldn’t budge on that position.

Under Twitter’s plan, existing shareholders will be able to buy shares at a discount if anyone takes more than 15 percent without board approval, mitigating an unwelcome bid.

Musk offers $54.20 per share in cash on Twitterwhich valued the company at $43.4 billion, days after he acquired a 9 percent stake in the company to become one of its largest shareholders.

Twitter’s board is concerned that if Musk builds a stake worth more than 15 percent, he could indirectly wield significant power over the direction of the company even without an executive or managerial role.

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A person close to the company’s board said the only way for Twitter to take over now is through a mutually-agreed deal, which should carry a much higher price.

Poison pills were developed as a defensive strategy in the 1980s to protect companies from corporate raiders, and were widely criticized as a way for company managers to inoculate themselves against attack. Subsequent legal challenges have reduced some of its effectiveness, and most academic studies have shown that while poison pills slow an unwanted acquisition attempt, they do not usually prevent a final, negotiated agreement.

Twitter said the plan could reduce the likelihood of a hostile bidder taking control of Twitter by accumulating the open market without paying an appropriate control premium to all contributors, as well as slowing any bidding.

She added, “The rights plan does not prevent the board of directors from dealing with the parties or accepting an acquisition proposal if the board believes that it serves the interests of Twitter and its shareholders.” She added that the plan expires on April 23, 2023.

After announcing his stake last week, Musk reached an initial agreement with the company to join its board of directors, just to… reverse path Monday without explanation.

Then Musk announced his offer Thursday in a regulatory filing that he said would unlock the company’s potential to be a “platform for free speech around the world.” Included was the text of the message he sent to Twitter, which said: “It’s a high price and contributors will love it.”

The offer represents a 38 percent premium to Twitter’s share price since April 1, three days before his stake was announced, although it’s still 26 percent below its 12-month high.

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It is unclear how exactly Musk will finance the deal. In an interview after the announcement, Musk said he had “enough assets” to do so and that he intended to keep as many shareholders as possible. However, he admitted, “I’m not sure I’ll actually be able to get it.”

Musk did not address the counter-offensive publicly on Friday, instead thanking his Twitter fans for their “support” after they voted for the company’s purchase in an online poll run by a bitcoin newsletter.

Additional reporting by Antoine Gara in New York