EXPLAINER: What Twitter's 'poison pill' is supposed to do
Twitter is trying to thwart billionaire Elon Musk’s takeover attempt with a “poison pill” — a financial device that companies have been wielding against unwelcome suitors for decades.
WHAT ARE POISON PILLS SUPPOSED TO DO?
The ingredients of each poison pill vary, but they’re all designed to give corporate boards an option to flood the market with so much newly created stock that a takeover becomes prohibitively expensive. The strategy was popularized back in the 1980s when publicly held companies were being stalked by corporate raiders such as Carl Icahn — now more frequently described as “activist investors.”
After announcing its board had approved a poison pill last Friday while the stock market was closed, Twitter on Monday provided more details in a regulatory filing that no doubt it's trying to fend off Musk's $43 billion takeover bid, even though the document didn't mention its antagonist by name.
Twitter's plan “works by imposing a significant penalty" on any investor that builds up a stake of at least 15% in the San Francisco company without the board's approval. The San Francisco company’s plan will be triggered if a shareholder accumulates a stake of 15% or more. Musk, best known as CEO of electric car maker Tesla, currently holds a roughly 9% stake, but has raised the possibility of buying more stock.
If Musk were to hit the 15% threshold, the Twitter board can then grant shareholders as of April 25 the right to buy one-thousandth of a share of preferred stock for each common share they own, at a price of $210. That option make it virtually impossible for anyone to buy Twitter, including Musk, the world's richest person with an estimated fortune of nearly $270 billion.
CAN A POISON PILL BE A NEGOTIATING PLOY?
Although they are supposed to help prevent an...