Twitter’s “poison pill” to stop Elon Musk

In the economic field, the sound of Elon Musk’s footsteps is like seeing a 25-meter wave arrive. The businessman is known for his unpredictable, dogmatic and impulsive behavior. When the Twitter management learned that he would be the company’s largest shareholder, he tried to surf that wave by attracting his new boss to his side. The plan was to give him a chair on the board of directors and play along on the platform itself, which Musk uses very actively, even if that meant revealing strategic plans such as the famous button to edit tweets.

It worked… for three days. Then Elon Musk was Elon Musk: he refused to join the board the same day he was to be officially appointed, said he did not trust the management’s ability, and launched an offer to buy the entire company at $54.20 per share. . The number that carries the “420” that is used as a synonym for marijuana consumption, a joke that the businessman had already made days before when he published a photo of himself smoking a joint along with the phrase “the next Twitter board of directors is going to be handsome.”

Musk is offering a 38% premium on the value of the shares on April 1. Some 40,000 million euros in cash. “I invested in Twitter because I believe in the potential to be the platform for freedom of expression around the world and I believe that freedom of expression is a social imperative for a functioning democracy. However, since making my investment I have realized that the company will not prosper or serve this social imperative in its current form. Twitter needs to transform into a private company,” he said.

Twitter has decided to fight. On Friday, a day after Musk made his bid to take control of the social network official, the social network’s board of directors unanimously approved a special plan that can be activated in the event someone accumulates more than 15 % of the shares and use them to jump the board and gain control of Twitter. It is what in the jargon is known as poison pill or “poisonous pill”, the burning nail to try to hinder the plans of Musk, who currently owns 9.2% of the shares.

“It is a very unusual measure, the last resort to avoid a takeover bid or a purchase, in this case considered hostile. And seeing how other similar ones have developed in the past, it does not end well. In other words, in the end it ends making the purchase”, explains Javier Molina, from the eToro trading platform.

The poison pill It consists of offering new shares to the current owners, but at prices below the market price. This multiplies the sum that must be paid by any buyer who aspires to take over all the partitions and makes the process much more arduous, since the council has the ability to artificially reduce the percentage of the company that it owns putting new titles in the market.

Preparing one of these poisonous pills before a purchase maneuver is intended to have a deterrent effect on the bidder. It was established in US law in the 1980s and since then this type of hostile buying has been greatly reduced. The problem is that now whoever goes for a company like Musk has done knows that he will very possibly have to face one of them.

Twitter management’s plan A was to bring Musk onto the board. Company rules prevent members of its board of directors from holding more than 15% of the stock and hold them fiduciary liable if they do anything that damages the value of the company. With that plan failing, Twitter’s hope is to make the buying process too tedious for Musk.

One of the side effects of poison pill will also affect that objective: “The consequences of getting into a poison pill They are eternal trials, because both the buyer and the shareholders who want to sell are going to denounce that the board is acting for their own benefit and not that of the company,” Molina advances.

Musk has not made any statement subsequent to the council’s decision to establish the poison pill before your purchase attempt. But he did do so after the presentation of his offer: “It would be totally indefensible not to submit this offer to a vote of the shareholders. They are the owners of the company, not the board of directors”, tweeted.

The largest shareholders of Twitter are large investment fund managers such as Vanguard or BlackRock (the two largest companies of this type in the world), the investment bank Morgan Stanley or Prince Al Waleed Bin Talal, one of the wealthiest investors of the regime. saudi “I don’t think the proposed offer comes close to the intrinsic value of Twitter given its growth prospects. As one of Twitter’s oldest and largest shareholders, I reject this offer,” Al Waleed tweeted.

In February 2021, Twitter shares hit all-time highs, reaching $77. However, since then they had fallen almost 50%. When Musk became a shareholder, the shares were trading below $39. The tycoon’s movement was celebrated by the market with increases of 25%.

“I think the board has made this move to buy some time and be able to negotiate, since Twitter’s stock was much higher last year and I understand that they believe that the company has the potential to go back up,” says Enrique Llanas, author of Tesla. The DNA of disruption (LID Editorial) and connoisseur of the figure of Musk. “I think Elon is going to negotiate but he’s not a patient man by nature,” he teases.

“If in the short term he cannot reach an agreement, he will sell his participation and reconsider the need to have a social network in property”, he warns: I think that the board of Twitter is going to try to reach an agreement. “I don’t think they’re going to risk Elon retiring.”

This Monday, the first day of Twitter on the stock markets after the announcement of the poison pillTwitter was up 5% again.

Elon Musk, co-founder of Paypal, Tesla or SpaceX, has the largest fortune in the world according to Forbes, with some 220,000 million to his credit. But very little of that money is liquid, as he himself has admitted: “Some think I have a lot of money. Actually I don’t.” Research like this Wall Street Journal They point out that their daily expenses are paid with loans in which they use the shares of their companies as collateral.

There are questions among analysts about how Musk intends to generate the liquidity needed to pay out $43 billion in cash. The businessman did not give details about it in his letter to shareholders nor in the TED talk in which he participated that same Thursday and which allowed him to explain why he wants to pay that amount for a company that has had many difficulties generating profits in the last decade.

“I have a very strong intuition that having a highly trusted and widely inclusive public platform is extremely important for the future of civilization,” he said in the talk: “I don’t care about the economics at all.”

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