Twitter is hoping to fight back against a hostile takeover from Elon Musk with a corporate maneuver called a “poison pill” shareholder rights plan, which according to the New York Times has rarely been attempted by a tech company of this size.
Developed in the 1980s as a tactic to hold off corporate raiders, a poison pill involves flooding the market with new shares. In this scenario, current shareholders devalue their own stake in the company in an effort to make acquiring a majority share both difficult and unprofitable. Such a strategy forces shareholders to buy more stock just to maintain their current position, but hey, they don’t call it a poison pill for nothing.
Most publicly traded entities are theoretically susceptible to a hostile takeover — that is, an attempt to acquire an ownership stake against the wishes of current management. Musk hoped to accomplish it by making an offer that shareholders couldn’t refuse, proffering $54.20 per share while Twitter had been trading at about $45. All told, Musk was putting $43 billion on the table. “It’s a high price and your shareholders will love it,” he wrote in an SEC filing.
If enough stockholders agreed to that price, then it wouldn’t matter what the Twitter board or CEO Parag Agrawal thought about the plan. In fact, since Musk also wrote, “I don’t have confidence in management,” Agrawal might expect to find himself out of a job the moment the Tesla founder was successful.
Twitter has set up its poison pill as a deterrent. If anyone — and here, ‘anyone’ is pronounced Elon Musk — acquires more than 15% of the social media platform, it would trigger the release of a deluge of new shares, some of which might only to be available to current shareholders apart from the bidder.