Twitter unveiled a counterattack against Elon Musk on Friday, using a strategy devised to repel corporate attackers in an attempt to block an offer to take over the world’s richest man.
The strategy, known as the poison pill, would flood the market with new stocks if Mr. Musk or another person or group working together bought 15 percent or more of Twitter’s stock. This will immediately reduce Mr Musk’s share and make it much more difficult to buy a significant potion of the company. Mr Musk currently owns more than 9 percent of the company’s stock.
The aim is to force anyone trying to acquire the company to negotiate directly with the board. Investors rarely try to break the threshold of poison pills, securities experts say, with the caveat that Mr Musk rarely follows the precedent.
Companies are often wary of using poison pills because they do not want to be seen as hostile to shareholders. However, some critics, such as Institutional Shareholder Services, an influential advisory group, said they were open to tactics in certain circumstances.
Twitter said the mechanism would not stop the company from negotiating a sale with any potential buyer and would give it more time to negotiate a deal that offers a sufficient premium.
The pill “does not mean the company will be independent forever,” said Drew Pascarella, a senior finance professor at Cornell University. “It just means they can effectively repel Elon.”
Mr Musk announced his intention to acquire the social media service on Thursday, making an unsolicited bid worth more than $ 40 billion public. In an interview later that day, he opposed Twitter’s moderation policies, calling Twitter a “de facto town square” and saying it was “very important that people have the reality and perception that they can speak freely within the law.” . “
Read more about Elon Musk and his Twitter offer
The billionaire’s proposal could cost more than $ 40 billion and have profound consequences for the social media company.
He also said he had a plan B if the board rejected his proposal, although he did not share it.
Analysts say Mr Musk’s offer – which offers significantly more per share than the current share price but is well below last year’s peak – could underestimate the company. They also expressed concerns about Mr Musk’s ability to combine funding. If the board negotiates a deal with Mr Musk, it could include a significant break-up fee, which could allay concerns about its volatile nature, contrary to the deal’s ability to close, some securities attorneys said.
Twitter tried to argue with the world’s richest man in recent weeks as he grabbed his stock. Last week, Twitter offered Mr Musk a seat on the board, but it deteriorated in the deal when it became clear that he would no longer be free to criticize the company. He turned down the role on Saturday and briefed Twitter on Wednesday night about his acquisition plans.
Twitter said in a statement that its plan for poison pills, which will remain in place until April next year, “is similar to other plans adopted by public companies in similar circumstances.”
Other leading shareholders on Twitter, according to FactSet, include investment giant Vanguard Group, the largest, with a 10.3 percent stake; Morgan Stanley Investment Management, with 8% stake; and BlackRock Fund Advisors, with a 4.6 percent stake.
Ark Investment Management, led by Katie Wood, a star in Reddit’s investment community that previously bet on Mr. Musk, has a stake of 2.15 percent. One of the founders of Twitter, Jack Dorsey, who is friendly with Mr. Musk, has a 2.2 percent stake. The Twitter board, which includes Mr Dorsey, voted unanimously in favor of the poison pill.
Mr. Musk seemed to be preparing for a long battle on Thursday. “Taking Twitter private for $ 54.20 should depend on shareholders, not the board,” he wrote on Twitter, along with a Yes / No poll.
Mr Musk’s initial proposal left important questions open. Mr Musk hired Morgan Stanley to advise the offer, although the investment bank is not known for self-financing large-scale deals. And Twitter shareholders seemed cautious: Twitter shares fell nearly 2 percent on Thursday, closing at $ 45.08, well below Mr. Musk’s offer. US stock markets closed on Friday for Good Friday.
Prince Al-Walid bin Talal of Saudi Arabia, who described himself as one of Twitter’s largest and long-term shareholders, said on Thursday that Twitter should reject Mr Musk’s proposal because it was not high enough to reflect. “intrinsic valueAnalysts also suggest that Mr Musk’s price is too low and does not reflect Twitter’s recent performance.
Mr Musk said accepting Twitter as private would allow more freedom of speech to flow on the platform. “My strong intuitive feeling is that having a public platform that is as trusted and inclusive as possible is crucial to the future of civilization,” he said in an interview with TED on Thursday.
He also insisted that the algorithm Twitter uses to rank its content, deciding what hundreds of millions of users see on the service each day, must be public so users can audit.
Mr Musk’s concerns have been shared by many Twitter executives, who are also pushing for more transparency about his algorithms. The company publishes internal research on bias in its algorithms and funds efforts to create an open, transparent standard for social media services.
But Twitter objected to Mr Musk’s tough tactics. Following a board meeting on Thursday morning, the company began exploring ways to block Mr Musk, including the poison pill and the possibility of courting another buyer.
During a general meeting on Thursday, Twitter’s chief executive, Parag Agraval, tried to reassure employees of the potential shake-up. Although he declined to give details of the board’s plans, he encouraged employees to stay focused and not allow themselves to be distracted by Mr Musk.
This is an evolving story. Check again for updates.