What is a 'poison pill' strategy & why has Twitter adopted one?
A poison pill strategy
gives existing shareholders
the right to purchase additional stock at a significant discount, thus diluting
the holdings of a new, hostile investor. It is officially known as a
shareholder rights plan. Twitter’s poison will stay in place for a limited
duration of one year.
The shareholder who triggers the
poison pill will be blocked from making these discounted stock purchases.
Twitter’s pill would be triggered
if a shareholder acquires more than 15% of the company in a deal not approved
by the board.
Twitter said the move aims
to enable its investors to “realize the full value of their investment” by
reducing the likelihood of any one person gaining control of the company
without either paying shareholders an
appropriate control premium or giving the board more time.
Twitter’s board is still
assessing Musk’s offer. And it would only put it to the company’s shareholders for a vote
after approval.
Musk, on his part, had said that
his current non-binding $43 billion buyout offer was partly contingent on
“completion of anticipated financing”.
Musk currently owns 9.1% of Twitter. If he were to
increase his holding to more than 15%, Twitter’s defence strategy
will flood the market with new shares that all shareholders except Musk can buy
at a discounted price.
This would instantly dilute
Musk’s stake, making the takeover way more expensive.
The strategy
also gives Twitter
more time to evaluate Musk’s offer and can force him to directly negotiate with
its board.
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