On Friday, Twitter adopted the “poison pill” in a bid to combat Elon Musk’s bid for a hostile takeover. Musk became the highest Twitter shareholder earlier this month, and subsequently made a $43 billion bid to buy the social media platform after rescinding his earlier decision to join the board.
The move has ignited a chain of reactions around the world. Musk said his aim is to take Twitter private, enable free speech on Twitter, and make it thrive. The SpaceX CEO, earlier this month, floated the idea of a social media platform where free speech is guaranteed.
But Twitter board was quick to put out a measure to prevent the possibility of a total takeover by limiting Musk’s ability to amass more shares as a board member, forcing him to turn down his appointment as a board member.
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“Twitter today announced that its Board of Directors has unanimously adopted a limited duration shareholder rights plan (the “Rights Plan”). The Board adopted the Rights Plan following an unsolicited, non-binding proposal to acquire Twitter,” The company announced in a statement.
Poison pill, which is also known as shareholder rights plans, typically trigger an automatic stock dilution through a flood of new shares if a corporate raider’s ownership stake grows too large.
Adopting the “rights plan” means Twitter will flood new shares if any person or group buys at least 15% of Twitter’s stock in a purchase that is not approved by its board.
Twitter said the plan, which will expire on April 14, 2023, is intended to enable all shareholders to realize the full value of their investment in Twitter.
“The Rights Plan will reduce the likelihood that any entity, person or group gains control of Twitter through open market accumulation without paying all shareholders an appropriate control premium or without providing the Board sufficient time to make informed judgments and take actions that are in the best interests of shareholders,” it said.
This means, if triggered by such a purchase, the plan would give other shareholders the right to buy additional shares of Twitter’s stock at a discount, diluting Musk’s shares and reducing the influence he may have through higher shares.
Twitter said the “Rights Plan” does not “prevent the Board from engaging with parties or accepting an acquisition proposal” if the Board believes that it is in “the best interests of Twitter” and its shareholders.
Musk had pushed for his bid to be decided by Twitter shareholders, not the board. But Saudi Arabian Prince Alwaleed bin Talal, a long-term Twitter shareholder openly criticized the bid, said the offer doesn’t come close to Twitter’s value and thus rejected it.
On Thursday, asset manager Vanguard Group increased its stake to 10.3 percent of Twitter, overtaking Musk who owns a 9.1 percent stake of the company. A move believed to have been part of Twitter’s plan to stop Musk.