Twitter's board of directors has approved a "poison pill" limited-term shareholder rights plan that might make it more difficult for Elon Musk to acquire the firm. The move is a bid by Twitter's board of directors to reclaim some control over the deal following Musk's startling purchase offer.
The "poison pill" clause allows Twitter shareholders apart from Musk to buy more shares at a low price, potentially diluting Musk's ownership. If Musk (or any other investor) buys over 15% of the company's stock, the provision will kick in. Musk presently owns roughly 9% of Twitter's stock.
What is Poison Pill?
It is a corporate anti-takeover defence mechanism that will not necessarily stop Musk's bid in its tracks, but it may increase the cost of buying the company or force Musk to negotiate with the board of directors.
It's a corporate strategy established during the wild leverage buyout (LBO) days of the 1980s in the United States, and it's another name for the "shareholder rights plan." The action enables business boards to defend themselves against hostile takeover bids and protect shareholders.
The issuance of preferred stock with special rights to the board, control of shareholder meeting schedules, and the possibility for current shareholders to buy more stock at a discount dilute the stake of the party attempting a hostile takeover.
Netflix also thwarted a potential hostile takeover in 2012
Netflix's stock was in decline in 2012. Carl Icahn, a well-known corporate raider, has a 9.98 per cent stake in Netflix and believes it should be bought by Microsoft or Amazon. Netflix implemented a poison pill that would kick in if an individual or an institution purchased 10% or 20% of the company. Finally, Netflix's hostile takeover was averted, thanks to the Poison pill.