《We Chinese in America》Media Editor Tang Zhao, April 17, 2022】Musk believes the Twitter issue is censoring speech, and he may ally with Twitter shareholders seeking reform to turn Twitter into a bastion of freedom. ( Photo from The Hindu Business Line)

Twitter's board of directors unanimously resolved on the 15th to launch a "poison pill" for the $43 billion takeover offer of the world's richest man, Tesla, and SpaceX CEO Elon Musk. The special board is working hard to block Musk's takeover, or to buy more negotiating time.

Twitter's board of directors said on the 15th that when Musk increases Twitter's shareholding from the current 9% to more than 15%, it will start a "shareholder equity plan", and shareholders "will realize the value of investing in Twitter.", that is, if someone wants to acquire a shareholder’s shareholding, they must pay a considerable premium.

"Shareholders' Equity Plan" is the official name of the poison pill clause. Although Twitter has not disclosed the specific details, the general operation is to issue a large number of new shares. Except for the acquirer who triggers the poison pill clause, all investors can use lower price of the stock to purchase the stock shares, and the buyer must pay a huge price to buy all the shares.

PeopleSoft does the same against Oracle

Twitter’s move is aimed at blocking Musk’s acquisition or gaining more time to negotiate with all parties for a better outcome. Twitter sacrifices "poison pill" to block Musk's hostile takeover, there was a similar case in 2003.

In 2003, Oracle proposed to acquire PeopleSoft, a management system company, at a price of $5.1 billion. PeopleSoft's board of directors tried to stop the matter, launched the "poison pill", increased the potential cost of enterprises, and launched legal battles. After 18 months of hard work, Oracle successfully acquired PeopleSoft at a price of up to $11.1 billion.

Carliss Chatman, an associate professor of law at Washington and Lee University, said the poison pill "was very effective" and that after its introduction in the 1980s, "hostile takeovers" of forced takeovers regardless of board consent have declined.

Wall Street may see Twitter as 'weak'

But the terms of the poison pill are also double-edged, and Dan Ives, an analyst at asset management firm Wedbush Securities, said Wall Street could see Twitter's poison pill as a "sign of weakness," affecting its perception of Twitter.

The board of directors may be sued by shareholders

The board of directors that offers the terms of the poison pill may also be sued by shareholders. For example, when shareholders think that the offer price is very attractive; Musk proposed to buy Twitter for $54.2 per share, which is more than 9% higher than the closing price on the 13th. That is 38% higher than the stock price before Musk disclosed in early April that he had bought a large stake in Twitter.

Musk has yet to respond specifically to this. Edward Rock, a scholar of corporate governance at New York University Law School, said Musk would show he was serious if he did one of two things next. The first is to put forward a specific plan for how to obtain 43 billion yuan in cash. The second is to launch a battle to replace board members with a large number of shares held to influence the decision-making of the board of directors.

Locke said that if there is neither, it shows that Musk is not really buying the company, and his move may just be another "Twitter whirlwind."

(Source: Compiled from Online Information)

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