Explainer: What Twitter’s ‘poison pill’ is supposed to do

Twitter is making an attempt to thwart billionaire Elon Musk’s takeover try with a “poison tablet” — a monetary system that firms have been wielding in opposition to unwelcome suitors for many years.

What are poison drugs presupposed to do?

The elements of every poison tablet fluctuate, however they’re all designed to offer company boards an choice to flood the market with a lot newly created inventory {that a} takeover turns into prohibitively costly. The technique was popularised again within the Nineteen Eighties when publicly held firms have been being stalked by company raiders reminiscent of Carl Icahn — now extra incessantly described as “activist buyers.”

Twitter did not disclose the small print of its poison tablet Friday, however mentioned it could present extra info in a forthcoming submitting with the Securities and Change Fee, which the corporate delayed as a result of public markets have been closed Friday.

The San Francisco firm’s plan might be triggered if a shareholder accumulates a stake of 15 per cent or extra. Musk, finest referred to as CEO of electrical automotive maker Tesla, at the moment holds a roughly 9 per cent stake.

Can a poison tablet be a negotiating ploy?

Though they’re supposed to assist stop an unsolicited takeover, poison drugs additionally usually open the door to additional negotiations that may power a bidder to sweeten the deal. If a better worth is sensible to the board, a poison tablet can merely be forged apart together with the acrimony it provoked, clearing the way in which for a sale to accomplished.

True to kind, Twitter left its door open by emphasising that its poison tablet will not stop its board from “participating with events or accepting an acquisition proposal” at a better worth.

Adopting a poison tablet additionally incessantly ends in lawsuits alleging {that a} company board and administration staff is utilizing the tactic to maintain their jobs in opposition to the very best pursuits of shareholders. These complaints are generally filed by shareholders who assume a takeover supply is honest and need to money out at that worth or by the bidder vying to make the acquisition.

How did Elon Musk react to Twitter’s announcement?

Musk, a prolific tweeter with 82 million followers on Twitter, had no quick response to the corporate’s poison tablet. However on Thursday he indicated he was able to wage a authorized battle.

“If the present Twitter board takes actions opposite to shareholder pursuits, they’d be breaching their fiduciary obligation,” Musk tweeted. “The legal responsibility they’d thereby assume could be titanic in scale.”

Musk has publicly mentioned that its $43 billion bid is his finest and ultimate supply for Twitter, however different company suitors have made comparable statements earlier than finally upping the ante. With an estimated fortune of $265 billion, Musk would appear to have deep sufficient pockets to lift his supply, though he’s nonetheless figuring out the right way to finance the proposed buy.

How has this defence labored previously?

Takeover tussles usually dissolve into gamesmanship that embody poison drugs and different maneuvers designed to make a buyout tougher. That is what occurred in one of many greatest and most drawn out takeover dances in Silicon Valley historical past..

After enterprise software program maker Oracle made an unsolicited $5.1 billion supply for its smaller rival PeopleSoft in June 2003, the 2 firms spent the following 18 months combating with one another.

As a part of its protection, PeopleSoft not solely adopted a poison tablet that authorised the board to flood the market with extra shares, it additionally created what it known as a “buyer assurance programme.” That plan promised to pay prospects 5 instances the price of their software program licenses if PeopleSoft was offered throughout the subsequent two years, creating an estimated legal responsibility of as much as $800 million for an buying firm.

PeopleSoft additionally acquired one other serving to hand when the US Division of Justice filed an antitrust lawsuit search to dam a takeover, though a decide dominated in Oracle’s favour.

Despite the fact that the corporate ended up promoting to Oracle, PeopleSoft’s defence technique paid off for its shareholders. Oracle’s ultimate buy worth was $11.1 billion – greater than twice its authentic bid.

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April 16, 2022