Twitter adopts ‘poison pill’ defense against Musk

PROVIDENCE, R.I. — Twitter said Friday that its board of directors has unanimously adopted a “poison pill” defense in response to Tesla CEO Elon Musk’s proposal to buy the company and take it private.

The move would allow existing Twitter shareholders — except for Musk — to buy additional shares at a discount, thereby diluting Musk’s stake in the company and making it harder for him to corral a majority of shareholder votes in favor of the acquisition.

Twitter’s plan would take effect if Musk’s roughly 9 percent stake grows to 15 percent or more.

The poison pill injects another twist into a melodrama surrounding the possibility of the world’s richest person taking over a social media platform he described Thursday as the world’s “de facto town square.”

Twitter said its plan would reduce the likelihood that any one person can gain control of the company without either paying shareholders a premium or giving the board more time to evaluate an offer. Such defenses, formally called shareholder rights plans, are used to prevent the takeover of a corporation by making any acquisition prohibitively expensive for the bidder.

Even if it discourages his takeover attempt, Musk could still take over the company by waging a “proxy fight“in which shareholders vote to retain or dismiss the company’s current directors. Twitter said the plan doesn’t prevent the board from negotiating or accepting an acquisition proposal if it’s in the company’s best interests.

“They’re gearing up for a battle here with Musk,“said Daniel Ives, an analyst for Wedbush Securities. “They also have to give themselves time to try to find another potential buyer.“

Musk has offered to buy the company outright for more than $43 billion, saying it “needs to be transformed as a private company” in order to build trust with its users and do better at serving what he calls the “societal imperative” of free speech.

“Having a public platform that is maximally trusted and broadly inclusive is extremely important to the future of civilization,“he said during an onstage interview at a TED event Thursday, just hours after his bid was announced.

Musk revealed in recent regulatory filings that he’d been buying Twitter shares in almost daily batches starting Jan. 31, ending up with a stake of about 9 percent. Only Vanguard

Group controls more Twitter shares. A lawsuit filed Tuesday in New York federal court alleged that Musk illegally delayed disclosing his stake in the social media company so he could buy more shares at lower prices.

After Musk announced his stake, Twitter quickly offered him a seat on its board on the condition that he would limit his purchases to no more than 14.9 percent of the company’s outstanding stock. But the company said five days later that Musk had declined.

Ives said Twitter’s poison pill path is a predictable defensive maneuver but could be seen as a “sign of weakness” on Wall Street.

Musk could try to fight the measure in court, but “no court has overturned a poison pill in the last 30 years,“said Columbia University law professor John Coffee. Rally shareholders to kick out the board might be more doable but also presents challenges to Musk, Coffee said.

Musk’s offer already faced resistance before Twitter threw its Friday counterpunch.

A Saudi prince who is among Twitter’s major shareholders scoffed at Musk’s offer in a Thursday tweet. Al Waleed bin Talal said he would reject Musk’s overtures because he didn’t believe $43 billion “comes close to the intrinsic value of Twitter, given its growth prospects.” The prince punctuated the tweet with another one from 2015 disclosing his Kingdom Company had raised its stake in Twitter to 5.2 percent — about half of what Musk now holds.

While Musk’s $54.20-pershare offer is nearly 40 percent greater than Twitter’s stock price before he disclosed his huge investment, it’s still far below the peak closing price of $77.63 reached less than 14 months ago. At that time, Twitter was valued at about $62 billion.

In a sign that investors are skeptical about Musk’s offer, Twitter’s stock fell in the first day of trading after the takeover bid was announced Thursday — exactly the opposite of what an approving market reaction looks like. The stock markets were closed Friday for the Good Friday holiday.