May 27, 2022

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Is it difficult for Elon Musk to swallow a "toxic pill" on Twitter?

Is it difficult for Elon Musk to swallow a “toxic pill” on Twitter?

Tycoon Elon Musk owns 9.2% of Twitter stock afp_tickers

This content was published on Apr 22, 2022 – 11:55


Elon Musk’s “poison pill” on Twitter is a tried-and-true defense mechanism that could force a billionaire to negotiate rather than use force.

To prevent a hostile takeover, the board of directors plans to activate a “pill” if Tesla’s CEO reaches 15% of Twitter’s stock market capitalization.

Musk currently owns 9.2% of the capital and said Thursday that he has raised the funding needed to launch a $46.5 billion bid for the rest of the company.

But from 15%, if the “pill” is activated, all other shareholders except Musk can buy shares at half the price, which will increase the number of shares in circulation and lighten the weight of the insatiable billionaire owner of Tesla and SpaceX.

It will then become almost impossible for him to take control of the company, except by spending an amount much higher than the amount initially planned.

“The mitigation created by this defense generally plays a deterrent role,” explains Eric Werley, associate professor of finance at Western Washington University.

The “poison pill” or “poison pill” is a maneuver devised 40 years ago by business attorney Martin Lipton to counter the hostile buyout tide that was in vogue on Wall Street.

The appeal was quickly appealed in court, and the practice was first validated in 1985 by the Supreme Court in Delaware, the state on which Twitter is based, although the group is from California.

John Karpov, a professor at the University of Washington, explains that “half of the listed companies were set up in this state” with beneficial taxes and “which established judgment about poisonous pills.”

The expert estimates that “unless there is something unusual about the pill, which I suspect, (…) Musk will have little desire to win in court” and cancel the mechanism.

“I don’t think it will go ‘in court’, because Musk has no legal basis” for success, adds Brian Quinn, assistant professor at Boston College.

– Negotiate and add –

The first alternative to getting the majority of the capital is to “change the board” of new allied members, Cowen details.

But the agenda for Twitter’s next public meeting, which will take place on May 25, has already been approved, which means that Musk cannot intervene before the next public meeting, in 2023.

Another obstacle is that the board of directors can only be renewed in installments.

Some members finish their term this year, while others guarantee the position until 2023, 2024 and even 2025; To gain a majority on the board, Musk will have to wait until at least 2024.

“There is no precedent for a buyer to get around the pill by replacing the plate in two consecutive elections,” warns Quinn.

So for the law professor, in this setting, “the only option is to negotiate with the board of directors,” perhaps suggesting an upwardly revised offer, with no guarantee of success.

In the event of negotiations, Musk will not be able to count on Jack Dorsey, the former head of Twitter, unless he reaches an agreement quickly.

Dorsey, the platform’s co-founder, has repeatedly expressed sympathy for the eccentric billionaire, even addressing some of his criticisms to the board of directors.

But after resigning in November, Dorsey announced that he would not seek a new trustee term and would leave the Board of Directors after the general meeting.

In parallel with the negotiations, according to Karpov, potential buyers often enter the campaign, which Musk started, primarily – ironically – on Twitter.

The college student expects “and I think his popularity (…) will help him”. “I wouldn’t be surprised if the junior owners gather (from the stock…) to help him lobby the board of directors.”

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