Twitter reported this Friday that it adopted a ‘poison pill’ planwhich might prevent the billionaire Elon Musk significantly increase your participation in the companyfollowing the CEO of Tesla will reveal a $43 billion offer by the social media company.
In a clear counterattack once morest Muskthe firm used this strategy in an attempt to block a takeover bid by the world’s richest man. One of the options is to adopt the so-called ‘poison pill’known as shareholder rights plan.
The new plan will reduce the chances that anyonegroup or company can take over twitter through open market share purchases without paying “an adequate control premium” or giving the board enough time “to make informed judgements.” What does this refer to? We explain to you.
What is the ‘poison pill?
1. The so-called plan of ‘poison pill’ allows a company’s shareholders the right to purchase additional shares at a discount, diluting indeed the ownership interest of the hostile party.
2. Las ‘poison pills’ are common between the companies under fire from investors activists or in situations of hostile takeover.
3. The concept emerged in the 1980swhen lawyers for an oil company attacked by T. Boone Pickens advised the company to flood the market with new shares, making it difficult for Pickens to buy a majority stake, according to the Corporate Finance Institute.
4. The ‘poison pill’ preserves the rights of Twitter shareholders (other than Musk) to acquire more shares of the company at a relatively cheap price, diluting effectively the participation of the CEO of Tesla.
5. The provision will be activated if Musk (or any other investor) acquires more than 15 percent of the shares of the company. The richest man in the world currently owns regarding 9 percent of Twitter’s shares.
6. Poison pill won’t necessarily stop Musk’s bidBut it might make buying the company more expensive or force the billionaire to sit down with the board.
The social media giant said Friday that the plan does not prohibit its board from accepting a takeover proposal if it believes it “is in the best interest of Twitter and its shareholders.”
With information from Bloomberg.
