Twitter takes poison pill as Elon stays red-pilledđ
Twitter enacted a âpoison pillâ plan a few days ago to thwart Elon Muskâs hostile takeover bid. The goal of the âshareholder rights plan,â as itâs formally called, is to make it extremely extravagant for Musk to purchase Twitter, which as many securities experts claim to be financially ruining even for the likes of Mr. Musk.Â
So what is a poison pill?
The strategy of the poison pill plans works like the name itself : A company intentionally dilutes its share value by offering its shareholders (except anyone who aspires to buy) the opportunity to buy more at a discounted rate.Â
The point of such a strategy is to make the company a less attractive, or downright financially infeasible, acquisition target.
Netflix and Papa Johnâs had successfully used the tactic in the past to prevent investor Carl Icahn and Papa Johnâs founder John Schnatter, respectively, from assuming control.Â
The specifics of poison pill plans vary by companies, but the specifics of Twitterâs plan are as listed below :
When any one shareholder owns more than 15% of Twitter, all the other shareholders will get the chance to buy shares at a discounted rate.
As stockholders splurge more on shares, the shares get diluted, so the 15% shareholder has to buy more to maintain their stakeâlet alone exceed it.
Musk currently owns a 9.2% stake of Twitter, and has proposed to buy the rest at $54.20 per share. But if and when Musk hits that 15% stake outlined in Twitterâs plan, his total bid will soar above the roof.
This doesn't imply that no one else can buy Twitter, instead they just canât buy it in a hostile manner by taking up shares from the open market. Any acquisition of the company has to be approved by Twitterâs board, the provisions of which Musk was vocally critical of.
Written by:
Adithy Praveen