Twitter on Friday revealed its counterattack against Elon Musk by executing a joint maneuver known as the Toxic Pill.
The strategy aims to slow or block Mr. Musk’s $43 billion bid to buy Twitter.
The poison pill, devised by law firms in the 1980s to protect companies from corporate raiders, essentially allows the takeover target to flood the market with new shares or allow existing shareholders other than the bidder to buy them at a discount. This means that anyone trying to take over the company must negotiate directly with the board of directors.
The pill will be run once any individual or group of people working together purchases 15 percent or more of Twitter stock. Mr. Musk currently owns more than 9 percent.
Twitter said the plan would run until April 14 next year, adding that it would not prevent the company from holding talks about a sale with any potential buyer. She said the mechanism would give her more time to negotiate an agreement.
On Thursday, Mr. Musk announced his intention to acquire the social media service, a purchase he believes will allow him to undo Twitter’s moderation policies.
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The billionaire’s bid could be worth more than $40 billion and have far-reaching consequences for the social media company.
Twitter tried to argue the world’s richest man in recent weeks when it bought its shares. Last week, Twitter offered Mr. Musk a seat on the board, but he soured about the arrangement when it became clear he wouldn’t be able to freely criticize the company. He declined the role on Saturday and informed Twitter on Wednesday night of his acquisition plans. The toxic pill maneuver is Twitter’s latest strategy to oust the billionaire.
Twitter said in a statement that its plan was “similar to other plans that publicly owned companies have adopted in similar circumstances.”
Companies are often wary of using toxic pills because they limit shareholder equity. However, some critics, such as Institutional Shareholder Services, an influential advisory group, have indicated that they are open to the tactic in certain circumstances.
If Mr. Musk, who is already the CEO of Tesla and SpaceX, wants to continue his pursuit of Twitter, he will now need to pass it on to shareholders. By submitting a so-called tender offer, he would have to persuade Twitter investors to sell their shares directly to him, allowing him to take control of the company.
Among other major Twitter contributors, according to FactSet, are Vanguard Group, the largest, with a 10.3 percent stake; Morgan Stanley Investment Management, with an 8 percent stake; and BlackRock Fund Advisors with a share of 4.6 percent.
One of the founders of Twitter, Jack Dorsey, who is friendly with Mr. Musk, owns 2.2 percent of the stock. Ark Investment Management, led by Kathy Wood, the star of the Reddit investment community who previously bet on Mr. Musk, has a 2.15 percent stake.
Mr. Musk appears to be preparing for an extended fight on Thursday. “Making Twitter private at $54.20 should be up to shareholders, not the board,” he wrote on Twitter, along with a yes/no poll.
However, it is not clear who, if anyone, will be on Mr. Musk’s side. His initial bare-bones offering left open important questions about his ability to raise funding together. Mr. Musk has hired Morgan Stanley to advise on the offer, although the investment bank is not usually known for financing large-scale deals on its own. Twitter stockholders sounded cautious: Twitter’s stock fell nearly 2 percent on Thursday, closing at $45.08 — well below Mr. Musk’s bid. Stock markets were closed on Friday for the Good Friday holiday.
Prince Alwaleed bin Talal of Saudi Arabia, who describes himself as one of Twitter’s largest and most long-term contributors, said Thursday that Twitter should reject Mr. Musk’s offer because it was not high enough to reflect the company’s offer.intrinsic value. Analysts also suggested that Mr. Musk’s price was too low to reflect Twitter’s recent performance.
Mr. Musk argued that making Twitter private would allow more freedom of expression to flow onto the platform. “My strong axiom is that having an extremely reliable and broadly inclusive public platform is critical to the future of civilization,” he said in an interview at TED on Thursday.
He also insisted that the algorithm Twitter uses to rank its content, determining what hundreds of millions of users see on the service each day, should be public for users to sift through.
Musk’s concerns are shared by several Twitter executives, who have also pushed for more transparency around his algorithms. The company published internal search He turned around bias in his algorithms and funded an effort to create an open and transparent standard for social media services.
But Twitter dismissed Musk’s harsh tactics. After a board meeting Thursday morning, the company began exploring options to block Mr. Musk, including a toxic birth control pill and the possibility of courting another buyer.
During an all-hands meeting on Thursday, CEO Paraj Agrawal, the CEO of Twitter, sought to reassure employees about the potential change. Although he declined to share details about the board’s plans, he encouraged staff to stay focused and not let Mr. Musk get distracted.
This is an evolving story. Check again for updates.