Twitter’s board has unanimously voted to adopt a limited duration shareholder rights plan, often called a “poison pill”, following an “unsolicited, non-binding proposal” from Tesla CEO Elon Musk to buy the social media company.
Recently, Musk, who is Twitter’s biggest shareholder with a stake of over 9%, made an offer to buy 100% of the company at $54.20 per share, estimated to be a total $43 billion deal. This came after he had rejected a seat on Twitter’s board.
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Twitter’s initial reaction was that it would “carefully review” the offer. “The Twitter Board of Directors will carefully review the proposal to determine the course of action that it believes is in the best interest of the Company and all Twitter stockholders.”
Now, in a press release, Twitter said, “The Rights Plan is intended to enable all shareholders to realize the full value of their investment in Twitter. 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.”
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The Rights Plan will expire on April 14, 2023.
“The Rights Plan does not prevent the Board from engaging with parties or accepting an acquisition proposal if the Board believes that it is in the best interests of Twitter and its shareholders,” it added.
Recently, Twitter’s former CEO Jack Dorsey had said the company was always “for sale”.
as a public company, twitter has always been “for sale.” that’s the real issue.
— jack⚡️ (@jack) April 15, 2022
What is a ‘poison pill’?
A ‘poison pill’ is officially known as shareholder rights plan. The strategy became popular in the 1980s.
“A poison pill is a way to stave off someone until you can get a higher price. It makes it outrageously expensive for the person to buy it,” Charles Elson, the founding director of the University of Delaware’s Weinberg Center for Corporate Governance, told Washington Post. “It’s a doomsday machine, it’s the atomic bomb, everyone gets wiped out — that’s the key.”
There are different types of poison pills, but usually, they allow certain shareholders to buy additional stock at a discounted price, Ann Lipton, an associate professor of law at Tulane University, told New York Times.
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The Rights Plan is similar to other plans adopted by publicly held companies in comparable circumstances. Under the Rights Plan, the rights will become exercisable if an entity, person or group acquires beneficial ownership of 15% or more of Twitter’s outstanding common stock in a transaction not approved by the Board.
In the event that the rights become exercisable due to the triggering ownership threshold being crossed, each right will entitle its holder (other than the person, entity or group triggering the Rights Plan, whose rights will become void and will not be exercisable) to purchase, at the then-current exercise price, additional shares of common stock having a then-current market value of twice the exercise price of the right.