It’s been a wild month of news for the social network that we collectively love to hate. In early April, Elon Musk took a bite out of Twitter, coming away with 9.2% of the company and plans to exercise his influence over the company through its board. After he backed out of his planned board seat, Musk teed up an even more outrageous plan: He’d buy the company outright and take it private. Absolutely everyone freaked out about this and had an opinion, and some of those opinions cast doubt on the seriousness of the famously unserious tech mogul’s grand plans.
Musk’s $43 billion offer valued Twitter for less than it was trading for a year ago, begging the question: Is this guy for real? We still don’t really know — Musk is mercurial and notoriously prone to big dumb stunts — but apparently he’s cobbling together the cash with some help from Morgan Stanley and Bank of America.
Musk is the world’s richest man, but he’s also relatively cash poor for a mega-billionaire, so making his play on Twitter would require him to cash out shares held at Tesla and SpaceX, the two companies he’s ostensibly running while whipping us all into a frenzy over his totally unnecessary ambitions to buy Twitter and reshape it in his image. Meanwhile Twitter is working to fend of Musk’s advances with a poison pill defense, which would let existing shareholders buy more stock at low, low prices, effectively diluting the company’s shares and pushing the price of his bid up.
As of April 25th, Twitter has accepted Musk’s $44 billion acquisition offer. Here’s a timeline of how the Twitter acquisition unfolded from start to finish.
A timeline of the Elon Musk-Twitter saga
1. US regulators said someone should really monitor Elon Musk’s tweets
Before Musk even placed a bid for Twitter, SEC regulators said they have authority to subpoena the Tesla CEO about his tweets and even urged a federal judge not to let the executive get away with tweeting with abandon.
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6. A Twitter shareholder sues after Musk fails to promptly disclose his huge investment in Twitter
A Twitter shareholder sued Musk in a federal securities class action lawsuit because Musk failed to disclose his 5% stake in Twitter when he was required to do so. The delay allowed Musk to buy more shares of Twitter at a lower price and cheat sellers of Twitter stock out of increased profits, the plaintiff claims.
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9. The following day, April 15th, Twitter’s board turns toward the defense everyone anticipated: the poison pill
Twitter’s board of directors announced in a press release that the company is adopting a limited-duration shareholder rights plan — a “poison pill” in merger and acquisition lingo. While the company doesn’t name Elon Musk directly, Twitter is clearly trying to prevent the billionaire from buying the social network.
10. Elon Musk breaks down how he’d fund his $43 billion bid for Twitter
To summarize: Musk intends to borrow around $13 billion in various fashions; borrow $12.5 billion against his own equity holdings; and pay around $21 billion from his own holdings. It’s a somewhat complicated collection of funding sources, but Musk’s bid is hardly small, so the path to collecting the needed cash in one pile is understandably convoluted.
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Do poison pills work? A finance expert explains the anti-takeover tool that Twitter hopes will keep Elon Musk at bay
Published: April 19, 2022 7.53am AEST
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Let’s say a company has 1,000 shares outstanding valued at $10 each, which means the company has a market value of $10,000. An activist investor purchases 100 shares at the cost of $1,000 and accumulates a significant 10% stake in the company. But if the company has a poison pill that is triggered once any hostile bidder owns 10% of its stock, all other shareholders would suddenly have the opportunity to buy additional shares at a discounted price – say, half the market price. This has the effect of quickly diluting the activist investor’s original stake and also making it worth a lot less than it was before.
Twitter adopted a similar measure. If any shareholder accumulates a 15% stake in the company in a purchase not approved by the board of directors, other shareholders would get the right to buy additional shares at a discount, diluting the 9.2% stake Musk recently purchased.
Poison pills are useful in part because they can be adopted quickly, but they usually have expiration dates. The poison pill adopted by Twitter, for example, expires in one year.
A successful tactic
Many well-known companies such as Papa John’s, Netflix, JCPenney and Avis Budget Group have used poison pills to successfully fend off hostile takeovers. And nearly 100 companies adopted poison pills in 2020 because they were worried that their careening stock prices, caused by the pandemic market swoon, would make them vulnerable to hostile takeovers.
No one has ever triggered – or swallowed – a poison pill that was designed to fend off an unsolicited takeover offer, showing how effective such measures are at fending off takeover attempts.
These types of anti-takeover measures are generally frowned upon as a poor corporate governance practice that can hurt a company’s value and performance. They can be seen as impediments to the ability of shareholders and outsiders to monitor management, and more about protecting the board and management than attracting more generous offers from potential buyers.
A poison pill isn’t foolproof, however. A bidder facing a poison pill could try to argue that the board is not acting in the best interests of shareholders and appeal directly to them through either a tender offer .. https://www.investopedia.com/terms/t/tenderoffer.asp – buying shares directly from other shareholders at a premium in a public bid – or a proxy contest .. https://www.investopedia.com/terms/p/proxyfight.asp , which involves convincing enough fellow shareholders to join a vote to oust some or all of the existing board.
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