Twitter adopts poison pill plan to block Elon Musk from increasing stake

The company on Friday adopted a so-called poison pill that makes it difficult for Mr. Musk to increase his stake beyond 15%. The billionaire founder of Tesla Inc. already owns a more-than 9% stake that he revealed earlier this month.

Poison pills, also called shareholder-rights plans, are legal maneuvers that make it hard for shareholders to build their stakes beyond a set point by triggering an option for others to buy more shares at a discount. Invented by famed corporate lawyer Martin Lipton in 1982, they are often used by companies that receive hostile takeover bids to block an unwanted suitor or buy time to consider their options.

In the case of Twitter’s pill, should Mr. Musk or anyone else take control of 15% or more of Twitter’s shares, all other shareholders would gain the right to purchase additional shares for what would effectively be half-price. That would quickly dilute Mr. Musk’s stake and make buying more shares expensive. The pill, exact details of which Twitter said it will provide in an upcoming filing, remains in effect for roughly a year.

Twitter said in a statement that the rights plan doesn’t prevent the company from engaging with potential acquirers or accepting a takeover bid if the board determines it is in the best interest of shareholders. It earlier confirmed it received Mr. Musk’s offer and is reviewing it.

The Wall Street Journal reported Thursday that Twitter was weighing installing a poison pill.

Mr. Musk may not be the only suitor for the company, as people familiar with the matter say that Thoma Bravo LP and other private-equity firms are now circling as well. But just because they are running the numbers doesn’t mean any of the firms will make a formal bid or that such a deal would come together.

Taking Twitter private would be no small feat; indeed, private-equity firms have explored and decided against it in the past. It would rank as one of the largest leveraged buyouts of all time, and Twitter doesn’t have the attributes of a typical LBO target like strong, stable cash flow. It is possible the buyout firms are also eyeing something short of a full takeover.

The New York Post earlier reported on Thoma Bravo’s interest in Twitter.

The private-equity firm, which specializes in the technology sector and manages roughly $100 billion, has been busy lately at a time of heightened buyout activity. It agreed to buy Anaplan Inc. for $10.7 billion in March, and SailPoint Technologies Inc. just days ago for $6.1 billion.

Mr. Musk, the billionaire founder of Tesla and privately held rocket company SpaceX, offered to pay $54.20 a share for Twitter and said that was his “best and final” bid. He has been criticizing how Twitter moderates content, among other things, and briefly agreed this month to join its board before backing out.

His takeover offer has prompted speculation that a white-knight bidder such as another technology company or private-equity firm could surface as an alternative to a deal with the unpredictable and outspoken entrepreneur.

One possible outcome is that Twitter rejects Mr. Musk’s offer as too low but leaves the door open for him to return with a higher one, some of the people said. Mr. Musk said if the offer isn’t accepted, he will reconsider his position as a shareholder of the company. He also has said he has a Plan B, without detailing it.

One big question mark is how Mr. Musk would fund any deal. Though he is the world’s richest man, much of his wealth is tied up in Tesla shares and his offer didn’t have details on financing plans, which, like other aspects of the bid, is unusual. The Journal reported Thursday that Morgan Stanley would provide some debt financing for the bid and that Mr. Musk has received approaches from investors interested in backing it.

“There are a plethora of multibillionaires eager to fund Elon for whatever he wants to do,” said Joe Lonsdale, an Austin, Texas, venture capitalist and co-founder of Palantir Technologies Inc.

One big name who doesn’t plan to put in money is Peter Thiel, a longtime associate of Mr. Musk dating back to their days as executives at PayPal Holdings Inc. While Mr. Thiel, a fellow billionaire who has invested in several of Mr. Musk’s companies, has expressed to friends broad support for Mr. Musk’s anything-goes vision for Twitter, he doesn’t plan to back any bid, according to people familiar with his plans.

Existing Twitter shareholders supportive of Mr. Musk could also roll over their holdings into any deal.

But in a sign that Twitter’s investors overall appear less than enthusiastic over Mr. Musk’s bid, the company’s shares closed down nearly 2% Thursday at $45.08. The market was closed Friday for the Good Friday holiday.

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