A “poison pill” as a defense mechanism.

A day after billionaire Elon Musk made a $43 billion bid to buy the platform, Twitter’s board has armed itself against a possible hostile takeover.

The board adopted the “limited shareholder rights scheme”, also known as the “poison pill” in the stock and finance world.

The measure will prevent anyone from owning more than 15% stake in the company. It does this by allowing third parties to purchase additional shares at a discount.

Twitter’s board detailed the defense plan to the U.S. Securities and Exchange Commission and issued a statement saying it was necessary “due to Musk’s unsolicited and non-binding bid to buy Twitter.”

A takeover offer is considered hostile when a company tries to buy another company against the wishes of that company’s management. When it comes to Twitter, it’s that of the board.

Josh White, a former financial economist at the Securities and Exchange Commission, told the BBC the “poison pill” was “one of the last lines of defense against a hostile takeover bid”.

“We call it the nuclear option,” he said.

White said the board has made it clear that “that’s not a high enough amount for the company.”

Twitter’s board took a “poison pill” as Musk signaled he didn’t want to negotiate a higher price.

White said he was surprised by Musk’s negotiation tactic because if the ultimate goal is to buy the company, it may not be the “right approach”.

“In fact, if he was really serious about his takeover attempt, he would have started with a price and left the window open for negotiation,” he said.

The plan will expire on April 14 next year.

Musk’s plan B

Twitter CEO Parag Agrawal previously said the company was not “pledge” to the proposal.

Meanwhile, Musk said at the TED2022 conference in Vancouver this Friday: “I’m not sure” on Twitter.

He added that he had a “plan B,” although he did not disclose it.

Musk announced a 9.2% stake in the company earlier this month, but is not its largest shareholder. Asset management firm Vanguard Group has announced that its funds now hold a 10.3% stake.

Musk said he believed it. excitement limits freedom of expression on the platform, and he reiterated this at the Vancouver event. He said his primary motivation would be to expand the United States’ constitutional right to free speech on Twitter.

Musk is recommended by the US investment bank Morgan Stanley. Meanwhile, Twitter has the help of two banks, Goldman Sachs and JP Morgan, according to Bloomberg.

The ‘poison pill’ strategy could work for Twitter

Analysis by North American Technology Correspondent James Clayton

Twitter is trying to make itself inedible for a predator. It wraps itself in thorns and coats it with venom.

The poison pill strategy has been around for decades, and it works.

If Elon Musk buys more than 15% of the company, Twitter will fill the market with new shares. That would dilute his stake in the company. Intelligent.

He strongly recommends that Twitter’s board will fight Musk’s bid to take control of the company.

That doesn’t mean Twitter says it doesn’t want to be bought. The mechanism gives the board more power to prevent a hostile takeover.

Elon Musk is likely to try to impress shareholders now. Twitter has already said it would be “vulnerable” for the board to fail to put the proposal to a shareholder vote.

Twitter thinks dating by the richest man in the world can be flattering but also very distracting.