Twitter revealed on Friday that it had implemented a limited-term shareholder rights plan, also known as a “poison pill”. It happened a day after billionaire Elon Musk proposed to buy the business for $43 billion.
The Twitter poison pill plan was unanimously approved by the board.
According to the new structure, if any person or organization obtains beneficial ownership of at least 15% of Twitter’s outstanding common stock without the board’s consent, other shareholders will be able to purchase additional shares at a discount under the new structure.
The plan will run out on April 14, 2023.
This is a common strategy to fend off a hostile takeover by diluting the stake of the entity eying the takeover.
“The Rights Plan will reduce the likelihood that any entity, person, or group gains control of Twitter through open market accumulation without paying all shareholders an appropriate control premium or without providing the Board sufficient time to make informed judgments and take actions that are in the best interests of shareholders,” the company said in a press release.
The rights plan, according to Twitter, would not prevent the board from accepting an acquisition bid if the board believes it is in the company’s and shareholders’ best interests.
Musk’s ambitions
According to a Securities and Exchange Commission report last week, Musk already owns more than 9% of Twitter. Musk’s ambitions to join the board of directors had become publicized shortly after his shareholding became public. Musk eventually changed his mind and decided not to join the board after all.
Musk could not have accumulated more than 14.9 percent beneficial ownership of the company’s outstanding common stock if he had joined.
Bloomberg also reported on Friday, citing unidentified sources, that Twitter has hired JPMorgan to assist with its response to Musk’s proposal. Twitter had already partnered with Goldman Sachs, and Musk had previously partnered with Morgan Stanley.
Twitter was also courting interest from Thoma Bravo, according to several newspapers including The New York Post. However, it’s still unclear whether a deal will materialize according to individuals who talked to Reuters.
JPMorgan has a history with Musk; having sued the business in 2018 over a tweet in which he said he had “funding secured” to take the company private. Tesla eventually filed a countersuit against the bank.
Twitter, JPMorgan, and Thoma Bravo all declined to comment.
Twitter is always “on sale”
Musk spelled out his vision in a live-streamed interview at the TED2022 conference in Vancouver on Thursday. He will make Twitter’s algorithms more publicly available and restrict content control.
He also admitted that he’s “not sure” if he’ll be able to buy Twitter. But that he has “sufficient assets” to pay the deal if it’s accepted. Despite his wealth, Musk has a big portion of his assets invested in equity in his firms, notably Tesla. It means he’d have to liquidate or borrow against his holdings to raise a large sum.
If Musk’s initial bid to buy the firm and take it private, which he calls his “best and final,” doesn’t get the greens signal, he indicated “there is” a Plan B. In the TED interview, he declined to share any additional information.
Twitter’s former CEO and current board member Jack Dorsey tweeted on Friday that “the real issue” is that “Twitter has always been ‘for sale’ as a public company.”