Twitter has responded to Elon Musk’s $43 billion attempt to purchase the company outright by implementing what is known as a “limited-duration shareholder rights plan” – otherwise often referred to as a “poison pill”.
The plan, which The New York Times said received the unanimous approval of the social network’s board, will prevent anyone from having a greater than 15% stake in the company. It accomplishes this by enabling shareholders to buy more shares at a discount, and it will remain in place until April 14, 2023.
The Twitter board set out its defense plan to the U.S. Securities and Exchange Commission, and issued a statement saying it was required due to Musk’s “unsolicited, non-binding proposal to acquire Twitter”.
The social media platform further explained: “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 judgements and take actions that are in the best interests of shareholders.”
“Poison pill” strategies are not new to Twitter’s situation in the face of Musk’s bid; they have been used for decades. Nor is the implementation of such a plan necessarily an indicator that Twitter does not want to be bought. Nonetheless, it is a mechanism that increases the board’s power to prevent a hostile takeover, and it appears that the board intends to fight Musk’s attempt to take over the company.
It seems likely that Musk will respond to Twitter’s move by appealing to its shareholders, having already said that “it would be utterly indefensible” if the board didn’t put his offer to a shareholder vote.
