[ad_1]
DETROIT – Twitter has put a huge roadblock in Elon Musk’s effort to take over the company, leaving investors wondering about the mercurial Tesla CEO’s next move.
The social media company has adopted a “poison pill” defense that makes it harder for Musk or any other investor to buy Twitter without board approval. Musk, who currently owns about 9% of the company, announced a bid of about $43 billion, or $54.20 per share, last week.
Twitter’s next likely move would be to officially reject Musk’s offer, but it could also enter negotiations. Musk has a number of options, including talks with the board, sweetening his offer, and even triggering the poison pill, which experts say could be disastrous for the company.
SEE ALSO: FEMA’s smallpox snafu: Feds use COVID money to buy flowers and food for epidemic funerals
In a regulatory filing Monday, Twitter’s board said it endorsed the defensive move to protect the social media platform from “coercive or otherwise unfair” takeover tactics.
The board still leaves open the possibility of negotiating with Musk or another suitor. The filing says that the shareholder rights agreement must not interfere with any merger, proposal or other business combination approved by the board of directors.
While Musk says his proposal is “final,” he may have to raise it to please other shareholders. A Saudi prince, who is among Twitter’s biggest shareholders, downplayed Musk’s offer in a tweet last week. Al Waleed bin Talal said he would reject the offers because he did not believe the $43 billion “does not come close to the true value of Twitter given its growth prospects.” Twitter shares hit an all-time high of $77.63 in March 2021.
Musk didn’t provide any details on funding when making his proposal public, but such an announcement could increase his chances. He could raise some of the money and bring in other investors by borrowing billions, using his stake in Tesla and SpaceX as collateral.
Beginning April 25, the Twitter board of directors’ poison pill will give shareholders the right to purchase one-thousandth of a preferred stock for $210 for each common share they own. Rights are triggered if any individual or group of investors buys 15% or more of the company’s stock without board approval.
Preferred stock will have the same voting rights as common stock, according to the filing, which doesn’t specifically mention Musk.
James Cox, professor of corporate and securities law at Duke University, said that if Musk or another investor buys 15% or more of the company, the poison pill defense will essentially spell the end of Twitter.
Shareholders who exercised the rights and purchased preferred shares at $210 said they would receive $420 in Twitter stock or assets. Cox said that would be more than Twitter could afford, possibly sending the company to buyers.
“You want to create an event that Musk would never want to trigger because it will be the death of Twitter,” Cox said. He predicts that Musk and his board will negotiate, at least for a while, adding that no investor has crossed the line to activate a poison pill.
Columbia University law professor Eric Talley said that if Musk goes ahead and triggers the poison pill, he risks destroying most of the money he has invested in Twitter as his stock will be diluted. “You want to prevent someone from intentionally triggering the poison pill,” Talley said.
Talley said Twitter’s board of directors has a lot of information that the average shareholder doesn’t, such as future earnings or market growth forecasts, and there’s no reason to believe the stock’s value has dropped artificially. The board, he said, could only hold on.
“Right now they’re sitting on a poison pill that’s a bit flashy. In terms of corporate law, if they hold that in place and say they’re not comfortable bargaining at this stage, they’re on a pretty solid footing right now.”
In making his proposal, Musk said that Twitter “should be transformed as a private company” to build trust among its users and better serve what he calls the “social imperative” of freedom of expression. He said shareholders, not the board of directors, should decide whether Twitter should be kept private.
Twitter’s shares rose 3.6% to $46.72 in Monday afternoon trading, still $7.48 short of Musk’s bid. It’s a sign that investors are skeptical about whether Musk can make the deal happen.
Musk began accumulating Twitter shares in late January, resulting in a nearly 9% stake. Only Vanguard Group controls more Twitter shares. A lawsuit filed in New York federal court last week alleged that Musk illegally delayed announcing his stock in order to buy more shares at lower prices.
Musk recently took to Twitter to criticize board members, saying that if his bid is successful, he would cut his board salary to zero, saving about $3 million a year, and noting that the board members collectively only have a small financial stake in Twitter. their “economic interests are not aligned with the shareholders”.
He also used an exclamation point to express his surprise that Robert Zoellick, a board member who is a former World Bank president, did not appear to have posted anything from his profile on the social media site. With more than 82 million followers, Musk is a prolific tweeter who criticizes other famous accounts for not tweeting enough, citing this as a sign that Twitter is dying.
____
O’Brien reported from Providence, Rhode Island.
[ad_2]
Source link