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Twitter adopts ‘poison pill’ intended to thwart Elon Musk’s takeover bid

The plan signals that Twitter does not look favorably upon Musk’s bid, valued at roughly $43 billion

Tesla chief Elon Musk speaks during a TED conference in Vancouver. (Ryan Lash/AFP/Getty Images)
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SAN FRANCISCO — Twitter on Friday threw a roadblock in front of Elon Musk’s hostile takeover bid, adopting a plan known as a “poison pill” that would make it much more expensive and complicated for the Tesla CEO to take control of the social media network.

The plan seeks to thwart Musk from growing his stake in Twitter by giving other shareholders the option to buy more shares in the company at a discounted price. It would effectively flood the market with new shares that Musk would have to buy at a higher price to acquire the company, making a takeover potentially prohibitively expensive.

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Twitter said in a statement that the plan “will reduce the likelihood” that Musk or any entity would gain control of the company without paying shareholders a premium or providing the board with more time.

As a result, Musk’s chances at a clean takeover of Twitter have been severely reduced. He will now have to negotiate with the board, revise his offer or be prepared to pony up significantly more cash — something corporate governance experts said is highly unlikely. There are other, more extreme options, such as waging a fight to unseat the board, but they would represent an even more complicated path for Musk.

“A poison pill is a way to stave off someone until you can get a higher price. It makes it outrageously expensive for the person to buy it,” said Charles Elson, the founding director of the University of Delaware’s Weinberg Center for Corporate Governance. “It’s a doomsday machine, it’s the atomic bomb, everyone gets wiped out — that’s the key.”

Five reasons it will be hard for Elon Musk to buy Twitter

Musk did not respond to a request for comment. Musk said at a TED conference Thursday that he has a backup plan if his initial bid for the social media giant does not work out, but he declined to elaborate.

Friday afternoon, Musk retweeted an online poll asking if he should buy Twitter to his 82 million followers. Voters overwhelmingly supported the move.

“Thanks for the support!” he wrote in response.

Late Friday, Twitter co-founder and former CEO Jack Dorsey signaled he may not be opposed to the takeover attempt, with a caveat. He commented, “same,” on a tweet by cryptocurrency Ethereum co-founder Vitalik Buterin, saying he didn’t oppose it but also dissuaded against enthusiasm for hostile takeovers of social media firms by the wealthy generally.

The so-called poison pill is the latest move in a roller-coaster series of events over the past two weeks, following Musk’s big reveal on April 4 that he had taken a more than 9 percent stake in the social media giant. At the time, that made the Tesla and SpaceX CEO the largest shareholder in Twitter and sent shock waves through Silicon Valley. Before the disclosure, Musk had run polls among his Twitter followers to solicit feedback on the platform’s support of free speech and even suggested a new social media company might be needed.

Twitter next said it had invited Musk to join its board, a move that would limit the billionaire’s stake to below 15 percent and would have warded off a takeover. On Sunday, Twitter CEO Parag Agrawal tweeted that Musk had declined the seat. Musk had previously unleashed a tweetstorm in which he questioned whether the company’s San Francisco headquarters should be used as a homeless shelter and whether the platform was dying, as well as making a vulgar joke about the company’s name.

Elon Musk joins Twitter board, promises ‘significant improvements’

Musk’s investments in Twitter started at the end of January. Months earlier, he sold billions of dollars’ worth of stock in Tesla after committing to shedding 10 percent of his stake in the world’s most valuable automaker.

This week he launched a hostile takeover bid to take Twitter private valued at roughly $43 billion.

Twitter employees, meanwhile, felt whiplashed by the events, according to people familiar with the situation who spoke on the condition of anonymity to discuss internal matters, as well as public tweets. This week was the company’s so-called “focus week,” during which it reduced the number of meetings following a “day of rest” on Monday. Many are concerned about the type of leadership Musk would bring to the company, which is known for a liberal and relaxed culture typical of certain Silicon Valley firms.

Some employees cheered the poison pill defense on Friday. Others said they wanted to get back to work.

A takeover bid is a distracting game for everyone involved, said David Larcker, a professor at the Stanford University Graduate School of Business. “It’s hard to speculate what’s going to happen, but you know it’s not business as usual. If you’re the management of Twitter, this sucks up all your time.”

Musk offered to buy Twitter at a cost of $54.20 per share, a price analysts said might be undervaluing the company. Twitter has traded above $70 per share over the past year, but was hovering around $45 per share by Friday.

The amount per share — which Musk said was his “best and final offer” in a filing — could also be a nod to his penchant for numbers referring to the unofficial pot-smoking holiday of April 20, or 4/20.

Elon Musk’s Twitter bid frustrates employees. That’s a risk for him

While the poison pill defense — which is triggered if Musk purchases a 15 percent stake in the company — doesn’t represent a formal rejection of Musk’s offer, it does insulate the board from a hostile takeover and buys it time, analysts said.

The terms of Twitter’s plan suggested that shareholders would be entitled to buy stock at an established price — that would then trade for a market value of double what they bought it for. Musk, the prospective buyer, would not be entitled to the discount. And his existing stake would be diluted by the flood of new shares, making it smaller.

How Elon Musk played Twitter

Musk could pursue other avenues besides renegotiating, experts and analysts said, though they were likely to result in a protracted and messy battle — one in which it’s unclear he would prevail.

One such route would be putting his offer directly to shareholders, effectively bypassing the board. Musk hinted he might do so when he tweeted Thursday that it would be “utterly indefensible” not to put his offer to a shareholder vote.

He followed that with a poll in which he asked Twitter users if shareholders should decide rather than the board. More than 83 percent of nearly 3 million respondents said yes.

Musk could also wage what’s known as a proxy contest, seeking to unseat the board by running his own slate of board members. If they could gather enough shareholder support to unseat the board, Musk — or his backers — could do away with the poison pill.

Musk probably would need to obtain significant financing to make his acquisition possible, though he said at the TED event Thursday that he “could technically afford it.” His sale of Tesla shares last year left him with more cash than usual, but he also faced a steep tax bill. Despite being the world’s richest person, much of that wealth is tied up in his companies Tesla and SpaceX. If he were to buy Twitter, he said, he’d want to let the maximum allowable number of shareholders stay on.

Musk is a frequent Twitter user known for using the platform to promote his companies, share memes and troll his adversaries. He also conducts polls, some of which hint at upcoming moves — as in the case of his purchase of his Twitter stake and stock sales.

Recently, he has spent weeks harping on the necessity of “free speech” on the social media site, firing off tweets aimed at influencing the discussion. It appears to be of relatively recent interest to the bombastic CEO, who also helms aerospace firm SpaceX; the Boring Company, a tunneling outfit; and Neuralink, a brain microchip start-up.

He characterized the issue as a “civilizational risk,” placing it — for him — alongside population collapse, and artificial intelligence usurping humans.

At the Thursday conference, Musk said the algorithms behind what users see on Twitter should be made public so content moderation decisions are visible and people can see what types of tweets are promoted and suppressed. Twitter has said it does not limit tweets based on views or opinions expressed within them.

Even seasoned financial analysts said that what happens next, as is often the case with Musk, is anyone’s guess.

Nell Minow, vice chair of ValueEdge Advisors, who is also a Tesla investor, said it puts pressure on the Tesla CEO. Minow speculates Musk will be forced to negotiate with the board.

Already, Musk faces a shareholder lawsuit for failing to disclose his more than 5 percent stake for 11 days, potentially earning him $156 million. More suits are likely to follow, Minow expects, from investors who feel shorted, those who feel Twitter is leaving money on the table, and even Tesla investors objecting to Musk’s use of his time.

“I suspect that at some point Tesla shareholders are going to say, ‘Excuse me, this is literally why we pay you the big bucks,’” she said.

Douglas MacMillan, Will Oremus, Nitasha Tiku and Rachel Lerman contributed to this report.

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