Tesla boss Elon Musk’s attempt to buy all shares in Twitter in order to run the service as a private company in the future is increasingly taking on the characteristics of a classic takeover battle. After Musk removed the Twitter board, to which he still wanted to become a member after buying the first 9 percent, informed of its intention to buy the rest, hired investment bank Goldman Sachs to explore better options. The Tesla boss is getting advice from Morgan Stanley, but the next move was made by Twitter.
Twitter poison pill to defend against Musk
A subscription rights plan with a limited term had been decided upon, the embattled company informed objectively in a press release on Friday. Stock exchange services immediately described this as a “poison pill”, and in fact subscription rights in the form chosen by Twitter are a classic measure to ward off unwanted takeover bids. The drastic expression is not to be understood in such a way that a target company poisons itself with desperation – rather the buyer should choke on it.
In the case of Twitter, the plan is said to be designed to allow all investors to realize the full value of their investment by reducing the likelihood of any individual or group gaining control of the company through open market purchases. At the same time, the board should gain time for important decisions in the interests of investors. And it has unanimously decided that if anyone owns 15 percent or more of Twitter’s shares, all other shareholders will be granted the right to purchase two additional shares at a discount for each of their existing shares.
Here is our press release on today’s announcement: https://t.co/32UzyhL2oy
— Twitter Investor Relations (@TwitterIR) April 15, 2022
So if Tesla boss Musk buys another 6 percent of Twitter on the stock exchange, the result would be that the number of remaining shares would triple. The price should fall as a result, but only Musk would not get any compensation in the form of additional shares — and his overall holding would also decrease accordingly. That sounds unfair, but it is sea Investopedia in this and other forms, a poison pill practice that has been common since the 1980s and has withstood lawsuits against it in court.
Tesla boss still has a plan B
One Twitter takeover by Tesla boss will not be impossible, but probably more expensive and difficult. The activation of the rights is subject to the proviso that exceeding the 15 percent is not supported by the Board. So Musk could settle with him, or a “white knight” could come with a management-backed takeover bid and save Twitter from him.
In the information to the board, he ruled out the possibility that the Tesla boss would improve his own offer of $54.20 per share and also expressed his lack of confidence in him. Musk said in an interview on Thursday that he was not sure whether the Twitter purchase would succeed, even if he did certainly not lacking the necessary financial resources. But he also has a plan B. Musk didn’t want to say what that consists of, but before that he had toyed with founding his own news platform. If that happens, it might become clear whether the Tesla boss and his company need the much-criticised and used service more urgently than they need it, or vice versa.