The “poison pillbrandished by Twitter in the face of Elon Musk is a mechanism with proven effectiveness, which might force the fiery entrepreneur to negotiate because he cannot force his way through. To prevent a takeover, the board plans to activate the “pill” if the CEO of Tesla reaches 15% of the capital of Twitter on the stock market.
He currently owns 9.2% and said on Thursday that he had raised the necessary funds to launch an offer for the rest, for an envelope of 46.5 billion dollars.
From 15%, all shareholders other than Elon Musk might then buy shares at half price, which would increase the number of securities in circulation and dilute the weight of the insatiable billionaire. It would then be almost impossible for him to take control of the company, except to spend a sum significantly greater than the envelope initially planned. “The dilution created by this defense generally plays its role of deterrence“says Eric Wehrly, assistant professor of finance at Western Washington University.
The “poison pill“was invented 40 years ago by business lawyer Martin Lipton to counter the wave of hostile acquisitions underway on Wall Street.
“It was the era of the ‘raiders’“, explained in 2011, to The Deal, the lawyer, an era embodied by these investors of a new kind, experts in financial arrangements, from KKR to Carl Icahn, via Kirk Kerkorian.
Quickly challenged in court, the practice was validated for the first time in 1985, by the Supreme Court of Delaware, on which Twitter depends, even if the group is Californian. “Half of the listed companies were created in this State“, with advantageous taxation, “who has well established case law on poison pills“, explains Jon Karpoff, professor at the University of Washington. “Unless there is something unusual regarding the pill, which I doubt, (…) Mr Musk would have little chance of winning in court“and to have the mechanism canceled, he believes. “I don’t think it will go to court, because Elon Musk has no legal basis“to triumph, abounds Brian Quinn, assistant professor at the University of Boston College.
