Axios reported that the “poison pill” is a corporate term that gives, in this case, Twitter’s existing shareholders time to purchase additional shares at a discount, thus diluting Elon Musk’s ownership stake. The move is designed to make it difficult for anyone, including Elon Musk, to build a stake worth more than 15% of the company.
PR Newswire posted a press release from Twitter’s Board of Directors. It is titled: “Twitter Adopts Limited Duration Shareholder Rights Plan, Enabling All Shareholders to Realize Full Value of Company”.
The wording the press release starts with includes: The Board adopted the Rights Plan following an unsolicited, non-binding proposal to acquire Twitter.
The Rights Plan is intended to enable all shareholders to realize the full value of their investment in Twitter. The Rights Plan will reduce the likelihood that any entity, person, or group gains control of Twitter through open market accumulation without paying all shareholders an appropriate control premium or without providing the Board sufficient time to make informed judgements and take actions that are in the best interests of shareholders.
CNBC reported that if any person or group acquires beneficial ownership of at least 15% of Twitter’s outstanding common stock without the board’s approval, other shareholders will be allowed to purchase additional shares at a discount. The move is a common way to fend off a potential hostile takeover by diluting the stake of the entity eying the takeover.
According to CNBC, if Elon Musk would have joined Twitter’s Board of Directors, he would not have been allowed to accumulate more than 14.9% of beneficial ownership of the company’s outstanding common stock.
The press release states that the Rights Plan does not prevent Twitter’s Board from engaging with parties or accepting an acquisition proposal if the Board believes that it is in the best interest of Twitter and its shareholders. To me, that wording makes it clear that Twitter’s Board does not consider Elon Musk’s offer to be beneficial.