: Twitter pops in poison pill to stop Musk from acquiring it #IndiaNEWS #Business Hyderabad: SpaceX Founder Elon Musk has been investing in micro-blogging platform Twitter. Currently, he has a little

Twitter pops in poison pill to stop Musk from acquiring it #IndiaNEWS #Business
Hyderabad: SpaceX Founder Elon Musk has been investing in micro-blogging platform Twitter. Currently, he has a little over nine per cent. Despite this, he is still a minority stakeholder. Musk said the listed Twitter should go the private way to support free speech. He offered to buy 100 per cent of it for . 20 per share in cash. The unsolicited offer valued Twitter at over $ 43 billion.
Musk said if the deal does not work he would reconsider his position as a shareholder. “This is not a threat, its simply not a good investment without the changes that need to be made. And those changes wont happen without taking the company private, Musk reasoned out.
Twitter pops a poison pill
Twitter, in its bid to thwart the unsolicited takeover offer, has now adopted this defensive tactic called the limited duration shareholder rights plan. This plan is commonly called a poison pill. In a filing to the stock exchange, Twitter said the plan would ‘protect stockholders from coercive or otherwise unfair takeover tactics. ’ Twitter’s poison pill makes takeover difficult and costly too.
What is a poison pill?
Poison pills were devised in the 1980s as a way to prevent takeover bids by taking away a shareholders right to negotiate a price for the sale of shares directly. Such a plan gives shareholders the right to buy more shares at a discount if one shareholder buys a certain percentage or more of the companys shares.
The goal of a poison pill is to force a bidder to negotiate with the acquisition target companys board and not directly with the shareholders. It gives the company management time to find competing offers that maximize selling price.
Variants of poison pills
The target company issues a large number of new shares, often preferred shares, to existing shareholders. These new shares usually have severe redemption provisions, such as allowing them to be converted into a large number of common shares if a takeover occurs. This immediately dilutes the percentage of the target owned by the acquirer, and makes it more expensive to acquire the target company’s stock. A ‘flip-in’ poison pill permits shareholders, except for the acquirer, to purchase additional shares at a discount. This provides investors with instantaneous profits.
How poison pills work?
If a poison pill is triggered, all other shareholders will be able to buy more shares at a discount. The shareholder who triggers the poison pill will be blocked from making these discounted stock purchases. Such purchases would dilute the bidders interest and the cost of the bid would rise substantially. This will discourage the bidder to take over a company without its boards approval and would negotiate with the board.

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