Twitter on Friday unveiled its counter-attack against Elon Musk, using a strategy invented by the world’s richest man to thwart corporate attackers in an attempt to block a takeover bid.
The strategy, known as a poison pill, is that if Mr. Musk, or any other individual or group works together, buying 15 percent or more of Twitter will flood the market with new shares. It is immediately Mr. Mask will reduce partnerships and make buying a large part of the company significantly more difficult. Mr Musk currently owns more than 9 percent of the company.
The goal is to force anyone to try to acquire the company in order to negotiate directly with the board. According to securities experts, investors rarely try to break the poison pill threshold – one would say “it would be financially devastating, even for him.” But Mr. Musk rarely follows suit.
Twitter said the process would not prevent the company from negotiating a sale with a potential buyer and would give it more time to negotiate a deal that offers adequate premiums.
Drew Pascarella, a senior lecturer in finance at Cornell University, said the pill “does not mean the company is going to be independent forever.” “That means they can effectively resist Elon.”
Mr Musk, who is valued at more than $ 250 billion and is the chief executive of Tesla and SpaceX, announced on Thursday his intention to acquire the social media service, making an unsolicited bid of more than $ 40 billion to the public. In an interview later that day, he took issue with Twitter’s restraint policy, calling it “de facto town square” and saying “it’s really important that people have the reality and the perception that they are able to speak freely within the law.”
He further added that he had a plan B if the board rejected his offer, although he did not share it.
Analysts say Mr Musk’s bid – which offers significantly more per share than current stock prices but below last year’s high – could devalue the company. They also expressed concern about Mr. Musk’s ability to finance together. If the board negotiates an agreement with Mr. Musk, it may include a breakup fee, which would require Mr. Musk to pay a hefty fine if the agreement is broken. That could allay concerns about the volatile nature of a deal closing, some security experts say.
Read more about Elon Musk and his Twitter bid
The billionaire’s offer could be worth more than $ 40 billion and could have far-reaching consequences for the social media company.
Twitter has tried to quarrel with Mr Musk in recent weeks over his snatching of its shares. Last week, Twitter offered Mr Musk a board seat, but he pushed for the arrangement when it became clear he could no longer independently criticize the company. He declined to comment on Saturday and announced his plans to acquire Twitter on Wednesday evening.
Twitter said in a statement that its poison pill plan, which will remain in effect until April next year, is “similar to other plans adopted by companies held publicly under comparable circumstances.” The company’s board, which includes Twitter co-founder Jack Dorsey, who is friendly with Mr Musk, voted unanimously to approve the plan.
Mr Musk still has other options, such as challenging the poison pill in court. “It’s less likely to succeed,” said Edward Rock, a professor of corporate governance at New York University School of Law.
“The first question is: does this bid pose a threat to Twitter and shareholders? And there’s a lot of argument that they could make it a threat,” said Mr. Rock. A brief statement has been given, and Mr. Musk has already raised the red flag with his filing of the public statement and proposal.
Companies are often wary of using poison pills because they do not want to be seen as unfriendly to shareholders. Nevertheless, some critics of the practice, such as the influential advisory group Institutional Shareholder Services, have indicated that they are open to tactics in certain situations.
Other top Twitter shareholders, according to Factset, include investment giant Vanguard Group, the largest, with more than 10 percent; Morgan Stanley Investment Management, with 8 percent; And BlackRock Fund Advisors, with about 4.5 percent.
Arch Investment Management, led by Kathy Wood, a star in the Reddit investor community, who previously placed bets on Mr Musk, has about 2 per cent the same as Mr Dorsey.
Mr Musk seems to have jumped on the bandwagon. When he informed the board of his bid on Wednesday, he said it was his “best and final offer” and that he would “reconsider my position as a shareholder” if it was rejected. But he admitted in an interview at a TED conference on Thursday that he did not like to lose. And the next day, he took to his favorite social media platform: “Twitter at $ 54.20 should rely on privately held shareholders, not the board,” he tweeted along with a yes / no vote.
Mr. Musk’s empty bones open up to important questions. Mr Musk has hired Morgan Stanley to advise Bid, although the investment bank itself is not known for financing large-scale transactions. And Twitter shareholders seem to be wary: Twitter’s stock fell nearly 2 percent on Thursday, closing at $ 45.08 – significantly below Mr. Musk’s offer. The US stock market was closed for the Good Friday holiday.
Mr Musk argued that the privatization of Twitter would lead to more free speech on the platform. “My firm belief is that having a universal platform that is the most trustworthy and widely included is crucial for the future of civilization,” he said in a TED interview.
He further added that the algorithm used by Twitter to rank the content, determine what millions of users are viewing on the service every day, should be universal for users to audit.
Mr Musk’s concerns have been shared by many executives on Twitter, who have been pushing for more transparency about his algorithm. The company has published Internal research Its algorithm is biased and has funded efforts to create an open, transparent standard for social media services.
But Twitter has thwarted Mr Musk’s hardball tactics. After Thursday morning’s board meeting, the company began exploring options to block Mr. Musk, including the possibility of contacting poison pills and other buyers.
During an all-out meeting on Thursday, Twitter’s chief executive, Parag Agarwal, sought to reassure staff about possible tremors. Although he declined to elaborate on the board’s plans, he encouraged staff to be vigilant and not allow themselves to be distracted by Mr. Musk.