What Twitter's 'Poison Pill' Defense May Mean For Elon Musk

Billionaire Elon Musk may not be able to take over Twitter so easily.

According to The Hollywood Reporter, the social media company is planning to adopt a “poison pill” defense in order to prevent the alleged takeover of the company after Musk offered to buy Twitter for $54.20 a share on Thursday.

It seems Twitter CEO Parag Agrawal and the rest of the Twitter Board, chaired by Bret Taylor, is ready to fight the Tesla founder’s attempted takeover of the company.

Twitter is adopting what is known as a “Poison Pill” plan, which could prevent Musk for acquiring any more shares in the company while they search for alternate options. Musk has been buying up shares in the company since January. He is currently facing a lawsuit from Twitter investors who allege that Musk failed to disclose when he had acquired a 5% stake in the company, which is required by the SEC.

Instead, Musk made headlines at the beginning of April when he made headlines for acquiring a 9.2% stake in the company, making him the largest shareholder at the time. In light of the recent Twitter drama, the Vanguard Group’s recent SEC filing shows that they have obtained a 10.3% stake in the company, as per Business Insider.

This would now make them the largest shareholder of the company.

The “Poison Pill” approach, also known as a Shareholder Rights Plan, is a defense against takeover attempts that use discounted share prices to dilute the holdings of newer shareholders. Several companies in the entertainment business have also followed this approach in recent years, including the Six Flags theme park, the Cineplex movie chain, and even iHeartMedia.

However, they are not commonly seen in companies in the tech sector, or in companies that boast Twitter’s massive size.

The “limited duration” plan is scheduled to expire on April 14, 2023, and would go into effect if a shareholder acquired more than a 15% stake in the company, if such a deal was not directly approved by Twitter’s board.

In a statement, Twitter said, “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.”

On Thursday, the Tesla founder explained why he wanted to buy the company at TED 2022: A New Era, which was being held in Vancouver, British Columbia.

“Twitter has become kind of the de facto town square, so it is just really important that people have the reality and the perception that they are able to speak freely within the bounds of the law,” he explained and expressed a desire to “open source the algorithm.”

“This is not a way to make money,” Musk stated. “My strong intuitive sense is that having a public platform that is maximally trusted and broadly inclusive is extremely important to the future of civilization. I don’t care about the economics at all.”

However, he admitted, “I’m not actually sure I will be able to acquire it.”

In previous text messages exchanged with Twitter board chair Bret Taylor, Musk expressed interest in buying the company. These text messages were made public in a recent securities filing and published by The Hollywood Reporter.

“I invested in Twitter as I believe in its potential to be the platform for free speech around the globe, and I believe free speech is a societal imperative for a functioning democracy,” he wrote. “However, since making my investment I now realize the company will neither thrive nor serve this societal imperative in its current form. Twitter needs to be transformed as a private company.”

“As a result, I am offering to buy 100% of Twitter for $54.20 per share in cash, a 54% premium over the day before I began investing in Twitter and a 38% premium over the day before my investment was publicly announced,” he continued. “My offer is my best and final offer and if it is not accepted, I would need to reconsider my position as a shareholder.”

He added, “Twitter has extraordinary potential.  I will unlock it.”