Elon Musk, eccentric tech innovator and richest man in the world, has purchased a 9.2% share in Twitter, making him the largest shareholder in the social media platform. He then announced on April 14th, after rejecting a position on Twitter’s board, that he’s making an offer to purchase the entire company and if he is unsuccessful he will reconsider his investment in Twitter.
In response, Twitter has indicated it will pursue a ‘poison pill’ policy to counter Musk’s hostile takeover. This means Twitter will flood the market with shares to impede Musk’s move, forcing him to negotiate directly with the board.
In the US a ‘poison pill’ can be triggered by the Board of a Company without shareholder input. Has Twitter management chosen a ‘poison pill’ in order to maximize shareholder value as per its mandate or simply to protect entrenched management?
Join us for a discussion of the saga of Elon Musk versus the Blue Bird of Unhappiness.
Further Reading:
On April 4, a regulatory filing revealed that Mr. Musk, the billionaire chief executive of Tesla and SpaceX and the world’s richest man, had bought a 9.2 percent stake in Twitter. The next day, Twitter announced Mr. Musk would join its board but by the end of the week he rejected the offer.
Elon Musk purchases Twitter shares, NYTimes
Times “Musk’s offer price of $54.20 per share represents a 38% premium to the closing price of Twitter’s stock on April 1, the last trading day before the Tesla CEO’s over 9% investment in the company was publicly announced.
Elon Musk offers to buy twitter at 54.20 per share, Reuters
In a tweet, Musk responded harshly to Saudi Prince Alwaleed bin Talal, who claimed to be ‘one of the largest’ Twitter shareholders and said he would ‘reject’ Musk’s proposal to take the company private, calling the offer insufficient. ‘How much of Twitter does the Kingdom own, directly & indirectly? What are the Kingdom’s views on journalistic freedom of speech?’ Musk asked bin Talal.
Elon Musk tries to buy Twitter, Daily Mail
Twitter is reportedly considering using a “poison pill” protocol to kill Elon Musk’s bid to take over the social media platform. The strategy would see Twitter activating its shareholders rights plan, which is in place to make a hostile takeover an expensive and complex process, according to a report.
Twitter considers ‘Poison pill’ to kill Elon Musk bid, Washinton Examiner
Literature names two opposing hypotheses concerning the market reaction to poison pill adoption. On the one hand, the managerial entrenchment hypothesis states that poison pills isolate the management from the positive forces of the corporate control market.
[…]
On the other hand, the shareholder wealth maximization hypothesis defines antitakeover provisions as rational devices that do protect shareholders. According to the hypothesis, the power of rejecting undesirable raiders is in the long-term interest of shareholders (Yeh, 2014). In general, the long-term perspective of a company should be preferred instead of short-term profits.
What Effect do Poison Pills have on Share Holder Value?
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