What happened to Twitter poison pill?

During a hostile takeover, someone buys 51% of the shares. They then elect a board of people who will approve whatever they want.

Then they can do things like 'merge' the company with some other company they own at a board-approved value-per-share. That value will be much lower than what they paid per share when buying it on the open market, but not so low that the government gets involved. Eg: Musk buys the shares at $50/share, and then 'merges' the company at $25/share, effectively forcing 49% of the shares to be sold at half price. Those shareholders get screwed because they didn't sell their shares during the initial takeover.

Edit: Or, just run the company however they want and share the profits with the other 49%, but ignore their votes, etc.

The Poison Pill says "If a hostile takeover starts, we'll create and sell new shares at a reduced price to existing shareholders- other than the attacker- to prevent the 51% scenario". This is done not to prevent any takeover, but in the interest of the 49% of holdouts who would have been screwed over. It's an effective block against the takeover.

The board represents ALL the shareholders, after all. They don't want to see anyone get screwed.

But now Musk has made a deal that the board has approved. All shareholders get a specific price that is approved. The board wants this to happen, so there's no poison pill.

Nobody knows yet why the board relented, but the scuttlebutt seems to be that Twitter arranged an internal valuation once Musk put a price on the company, presumably as justification for an internal plan that they'd announce as their alternative to acquisition, and the valuation actually showed Musk was overpaying for the income Twitter was likely to generate.

(If the board hadn't relented, Musk's next step would have been to arrange for a tender offer, which goes directly to the shareholders, but does not involved Musk acquiring new shares, but rather just a commitment to buy those shares if the board drops the poison pill. Successfully getting that commitment would be a very strong signal to the board, which would likely then drop the shareholder rights plan and allow the acquisition to proceed. But Twitter's board skipped those steps.)

The poison pill was intended to prevent a takeover without the board’s approval (buying 51% on the open market)

The board is negotiating an approved takeover which is entirely different

I.e. the board was saying “you can only buy Twitter if we say so”

There was no reversal of intentions

The poison pill would only take effect if someone purchased >15% of shares on the open market—going around the board. Elon made an offer to the board directly which they can accept without triggering the poison pill.

The Poison Pill plan was from the Board, to stop Musk from following through with a hostile takeover. But Elon reportedly convinced numerous large shareholders of his plan[1]. Even if the Board isn't a fan of it, the Board of a publicly traded company is ultimately beholden to their shareholders, so if the shareholders are convinced, they need to consider it.

1. https://www.reuters.com/business/exclusive-twitter-under-sha...

The poison pill was a negotiating tactic to discourage Musk or at least get him to raise his offer.

What happened? Simple. Large shareholders are in favor of the sale.

The board here doesn't "sell" Twitter. All they do is recommend to the shareholders to accept the offer. I mean it's not quite as simple as that because there are rules about making formal takeover offers and boards can (and do) negotiate with potential buyers who may exact conditions like not seeking other offers and so on.

But ultimately this is up to the shareholders and the board is just reflecting the will of those shareholders to sell.

> What caused the board to change the direction 180 and now closing the deal with Musk?

Enough of the large shareholders behind the scenes backed the deal for whatever reason. Who, what and why? We'll never get the real story. Not in any newspaper, blog or whatever. I'm sure we'll get some fanciful stories, but that's all it'll be. Fanciful stories.

The board of directors aren't the ones that have the final say. It's the major shareholders. Usually, the major shareholders back the board of directors because they are the ones who elect/hire the board of directors. Somehow, Elon and his backers convinced enough of the big boys to back him instead of the board of directors. Simple as that. Maybe he offered them free a roadster, starlink setup or a seat on a future spacex mission to mars. Who knows. But elon outmaneuvered the board of directors somehow.

The poison pill provision and Elon's takeover are not mutually exclusive. It's in the board's best interest to gain maximum leverage over Elon. A poison pill puts the board in a better negotiating position in discussions with Elon allowing them to get better terms. Once terms are agreed they are free to repeal the poison pill.

Poison pill can be used for price negotiation, not just blocking an offer. Prevent hostile takeover and force the buyer into the negotiation table. They are now in the negotiation table.

The rumor is that the offer to be accepted is the same, so it wouldn’t have worked as intended, but that doesn’t mean it wasn’t worth trying.

If they did the poison pill they have to show strong results to prove that the company is more valuable than the offer and that they are better shepherds of the company. If Twitter announced weak results in the upcoming earnings call in these market conditions, their stock would fall hard. If his bid were to be rejected, Elon would sell his 9% stake which would be another blow. The current board can't survive this. They will be sued for not performing their fiduciary duty.

Nothing is ever set in stone. He had the money and $43 billion is too enticing to pass up given that the stock has done nothing since the IPO.

My understanding was that the poison pill would not kick in until someone owned 15% of the common shares[0]. Musk owns less than that, so the poison pill has not activated. However, Musk claims to have funding for an offer such that he did not need to buy the shares to reach 15%, instead he just said, I want to buy them all -- everything for $46.5B.

[0] https://www.cnbc.com/2022/04/15/twitter-board-adopts-poison-...

It seems that many people considered the poison pill anouncment as a rejection of Musks offer. It was not. Here is a rough sequence of events:

Musks asks the board if he can buy Twitter.

The board institutes a poison pill to prevent any shenanigans while they consider the offer / to give them leverage.

The board decides to accept musk's offer. Musk did not have to do a hostile takeover by buying shares in the market, so the poison pill never triggered.

David Sacks' take on this (thread):

„Things that must be true if Twitter’s board is ready to accept @elonmusk’s offer:

1) they did a soft market check and there were no other bidders.

2) @Jack is on board.

3) the pressure campaign worked.“ (cont.)

https://twitter.com/davidsacks/status/1518623080557342720?s=...

The legality of a poison pill is defined by case law of of Unocal vs. Mesa Petroleum.

https://en.wikipedia.org/wiki/Unocal_Corp._v._Mesa_Petroleum....

Basically a company can ONLY create a poison pill IF and ONLY IF:

* the tactics of the party doing the hostile takeover are "coercive"

* the hostile takeover will likely result in dissolution of the company

Neither applies to Twitter in any serious sense. Musk's methods are anything but coercive under the law per point #1. A change in direction or operations is NOT legally the same as point #2.

Additionaly, board members are required under law to maximize shareholder value under the rubrik of profit maximization (eBay vs. Newmark) and public company board members can be PERSONALLY legally liable for lost profits and punitive damages.

https://www.lexisnexis.com/community/casebrief/p/casebrief-e...

It's VERY LIKELY that the Twitter board was informed of these cases (again, hopefully - these are legal fundamentals of being on a corporate board you'd be stupid not to know ahead of time).

As a result the Twitter board appears to have "straightened up and are flying right" in terms of law and potential legal liability now.

Again: I'm utterly mystified that boards (especially in "Tech") do not seem to know basic stuff like this and let companies run riot in ways that puts both the board and executives at tremendous personal legal and financial risk.

I have a very cynical take on this. Assume that the board members are acting for the board members, no one else.

If Elon buys Twitter, what happens to the board? Well, he can fire them all. They may prefer to remain board members, with the money and power that comes from that. So the poison pill, while it may be offered in the name of "protecting" the existing shareholders, is really a way for the existing board to remain in power.

But that won't work if the offer is good enough that the existing shareholders want to take it. Then the poison pill becomes something the shareholders don't like, because it prevented them from doing what they want. Depending on how badly the existing shareholders wanted the offer, the board may not remain in power that way either.

Note well: There may be details in the way all this went down that don't fit in my cynical little narrative. But absent knowledge of those details, this is my suspicion of what's really driving the poison pill.

Like everything in finance, simply talking or threatening something is enough to make it real. The actual pill or action is rarely ever wanted or needed, it’s like the meta verse of bluffing.

Money talks, talk walks.

As an aside, I have no direct proof but I'm convinced that Twitter is massively overvalued. The board could've just been fishing for a higher offer.

This question and a lot of the replies I think are really caused by a failing of news media to set explain what’s happening, and set expectations.

Unless twitter had some crazy annual report under its sleeve there was no way anyone was valuing it at over 54.20. That doesn’t mean that the board has to accept that offer and it doesn’t mean they have to take any Jack or Jill that makes that offer seriously. But it does mean if someone who can clearly afford it shows serious interest the deal will probably, at least possibly, happen.

The poison pill was never a rejection of the 54.20 or price. If you read something that gave you that impression go back and look up the author, and never read them again. They did you a disservice.

>> What caused the board to change the direction 180 and now closing the deal with Musk?

He secured financing for the deal.

The two biggest threads that seem to be coming out: 1- a number of large shareholders are on board 2- (probably related to the prior point) no one seriously thought Musk would be able to secure the financing, but he did. Remember, this is the guy who promised to do a take-private of Teslas with "funding secured" when it was very clear no such funding was secured. The Board, understandably, didn't want to waste time negotiating with Musk and said "show us the money"

This is a good piece (before Musk had secured the financing): https://www.bloomberg.com/opinion/articles/2022-04-20/elon-c...

> Another point I would make is that Twitter’s board is doing a decent job of (1) asking these questions and (2) forcing Musk to answer them. In a sense, launching a tender offer is a way for Musk to put pressure on the board to do a deal. But in another sense, forcing Musk to launch a tender offer is a way for the board to pressure him to find financing, which is a prerequisite to a deal and not something he would do on his own. In his own life, Musk is very casual about what counts as “funding secured,” as we know now from repeated experience. Writing a tender offer document will force him to be less casual.

> Broadly speaking, what has happened so far is (1) Musk offered the board $54.20 per share to buy Twitter, (2) the board said “show us the money,” and (3) Musk is working on it. If he comes up with the money, then the board will have to make some decisions, but right now the ball is in his court.

The poison pill says elon cant buy more but current shareholders can buy more at a discount relative to the stock market. Basically Elon was just going to shell out slightly more money or fail and everyone who didn't buy is screwed.

It however takes shareholders to want to buy more. Twitter is quite undefended. Poison pill was never going to be effective in any major way. At most they were going to delay the inevitable here.

The media coverage of the poison pill was pretty bad, this was not going to be effective at stopping anything. The bigger news is why is Twitter so undefended. It makes sense from Jack Dorsey's pov, he was backing off. However even a saudi prince incorrectly believed he still owned twitter stock. It's super unusual for a S&P500 company to be so undefended.

Yet worse, something that I have never seen happen, there are a ton of S&P500 companies that are undefended. This isn't true in other country indexes. What made the US stock market so offensive? I checked all my US holdings and somehow each of them are healthy with the only exception being Tyson. The stock market is going to blow up?

DOW is down -7% YTD. S&P500 is down -11% YTD. With inflation at 8.5%, those are down alot.

I assumed that the board did't want to end up in court for breaching their fiduciary duty [1]. But that could just be spin.

[1] https://twitter.com/elonmusk/status/1514718700674306052

What caused the board to change course was that Elon Musk filed with the SEC showcasing that he actually has $46 billion in funding secured, via an amended 13D filing [1].

This led Twitter's board to take his offer more seriously and many shareholders to ask the company not to let the opportunity for a deal slip away [2].

[1] https://www.sec.gov/Archives/edgar/data/1418091/000110465922...

[2] https://www.reuters.com/technology/exclusive-twitter-set-acc...

The idea of the ”poison pill” is to make it possible for board members to strenghten their ownership by issuing new shares to existing owners with a discount in the event that one single outside entity buys a significant portion of the shares.

It is artificial dilution, which in practice makes it possible for the board to cause heavy short-term losses to anyone attempting a hostile takeover: the market reaction to dilution is predictably a lowering of the going price of the stock unless the news comes with significant and credible hype about future profits.

The risk of this happening is what is thought to stave off the takeover.

Matt Levine:

The poison pill left “Musk two main options. One is to negotiate with Twitter’s board and try to strike a friendly deal. This might be hard because the board probably wants more money than Musk is willing to pay, and also because there seem to be strategic and personal disagreements between Musk and the board that might make friendly negotiations difficult. ‘I am not playing the back-and-forth game,’ Musk said in his initial proposal; ‘I have moved straight to the end.’ That’s an annoying way to start negotiations.

His other option is to pressure the board into dropping the pill, and the classic way to do that is with a tender offer plus a proxy fight, as we discussed yesterday:

1. Musk can launch a tender offer to buy all of Twitter's stock for $54.20 in cash. (Or, of course, some higher number.) The tender offer is a public, binding document filed with the SEC, open to all shareholders, and it will be full of disclosures about his plans and, in particular, his financing. Shareholders will be able to read it and see if he has the money. If it looks like he does, then they will be able to decide if $54.20 is a good enough price. If they think it is, they will be able to tender into his offer, submitting their shares for purchase. He won’t be able to buy them, though, because of the poison pill; the tender offer will be contingent on getting rid of the pill. But if like 90% of shareholders tender into his offer, then that is an important public-relations victory; he can go to the board and say “your shareholders want this deal, let them take it.” And then the board might agree and get rid of the pill, and then the tender offer can close and he can buy the shares.

2. Meanwhile, he can also try to get shareholders to vote their shares in a way that gets rid of the pill. Classically, the way to do this is to run a proxy fight to kick out the existing directors and replace them with Musk’s chosen directors, who would get rid of the pill and let him close his deal. Musk can’t really do that here, because of Twitter’s corporate structure, but he can run some sort of informal symbolic proxy fight where he urges Twitter’s shareholders to vote against the directors who are up for election in May, or where he urges them to vote to declassify Twitter’s board so it’s easier to kick the directors out in the future. If 90% of shareholders vote with him for these things, that’s another sign to the board that the shareholders want his deal and should be allowed to take it.

These things do not work automatically; even if 90% of shareholders tendered into Musk’s offer and voted with him at the annual meeting, the board could still tell him to buzz off. It could easily do that if it found another bidder willing to pay a higher price, but it could also legally do that even without a higher bid; the law tends to defer to the board’s business judgment about whether or not to accept a merger offer. But most of the time directors care about what their shareholders think, and if all the shareholders want Musk’s $54.20 then it’s embarrassing for the board not to give it to them.” [1]

TL; DR The poison pill forces Musk to negotiate with the Board.

[1] https://www.bloomberg.com/opinion/articles/2022-04-20/elon-c...

https://i.kym-cdn.com/entries/icons/mobile/000/037/756/tumbl...

I don't think you can just "take a poison pill" as a board.

The board are required to act in shareholders best interests. Taking poison pills is not usually in their interest. So you have to do it before their are a lot of shareholders (while you're still privately held) or you need a very good excuse. Doing it during a takeover is especially questionable. So the board would open themselves up to personal liability...

"At the Temple of the Seven-Handed Sek a hasty convocation of priests and ritual heart-transplant artisans agreed that the hundred-span-high statue of Sek was altogether too holy to be made into a magic picture, but a payment of two rhinu left them astoundedly agreeing that perhaps He wasn’t as holy as all that."

— Terry Pratchett, the Colour of Magic

The poison pill is the name of a corporate strategy that prevents Elon from just buying 50% of the shares in the stock market and doing whatever he wants. It doesn't mean the same thing as the board saying they would rather swallow poison than deal with Musk.

Therefore, the board engaging with his bid to buy twitter, and the two of them only negotiating that way, was the goal. So it's not a 180.

The board was originally hesitant to engage because even Elon Musk could have a lot of trouble raising $44 billion in cash. They didn't want to agree to a deal that didn't go through (like trying to buy a house without cash or preapproval). He seems to have secured loans to actually pay for Twitter, so now they are seriously engaging.

My read on it is that the shareholders didn’t want Musk controlling the company (owning 51%) and dragging them along with him. Being the absurdly rich person he is, he’d likely not care too much about how service changes would affect the stock price.

However they are quite happy to let Musk buy all of them out (owning 100%) at a reasonable price then let him do whatever marketshare-tanking moves he wishes. They don’t actually care about the fate of the company, they just don’t want to lose money.

My understanding is they changed their position when Musk proved that he could come up with the funds (previously he was unsure)

The board probably got a preview of Thus's quarterly call. Everyone then decided poison pill is not worth it :)

An open question to those advocating for poison pills as a mechanism for existing shareholders to exercise control - why don't companies have permanent poison pills?

The fact that they are enacted only in certain scenarios to me is the indicator that they are hostile and discriminatory.

The poison pill was likely a defensive manuever to allow them time to evaluate their options.

The thought was the poison pill was to give them time to mull the offer over, nothing more.

A lot of people are about to find out that a lot of things that "were said" are, at best, untruths, if not lies or outright gaslighting.

For the first time in a long time I am slightly optimistic about the future.

Deals like this are all about leverage. Who has the power?

The poison pill would force Musk to be a "good actor" in the negotiations. You want negotiations like this to be friendly and not become a hostile takeover.

> Last week it was said that Twitter's directors will take a poison pill instead of selling Twitter to Elon Musk.

No, it wasn't. What they did was change the governance rules to create a poison pill to minimize the possibility of a hostile takeover. Musk's offer was an offer made "to" the board, it wasn't an attempt to actually buy >50% of the company on the open market. In point of fact, "true" hostile takeovers are pretty much impossible owing to exactly this ability of boards of directors to allocate new shares (though the details vary between companies, some have limited rulemaking, some have very large individual shareholders who might act in concert, etc...).

This kind of stuff is just general prudence on the part of the board when it looks like a takeover attempt might be in progress. It doesn't constrain their ability to negotiate on behalf of all the shareholders.

https://www.youtube.com/watch?v=ETxmCCsMoD0

It was a choice. After talking to Musk, the board decided to take the money and not trigger the poison pill. That's all.

They have fiduciary obligation to take Elon Musk offer otherwise they can get sued by their Shareholders. Listen to this episode of the all in podcast to understand more: https://www.youtube.com/watch?v=9Suaj_0wKV0

Twitter's board didn't know what it meant...

There's nothing to poison. The board wants this.

WSJ has an article about it this morning:

https://www.wsj.com/articles/how-elon-musk-won-twitter-11650...

freelink: https://www.wsj.com/articles/how-elon-musk-won-twitter-11650...

tldr:

- Making an offer without financing was a 4-D chess negotiating tactic

- Nobody else stepped in to buy it

- Musk was lining up support from other top shareholders

- Twitter's bankers told them it was a good deal

To my understanding, the Twitter Board did not own significant shares of the company. Having next to 0 ownership put them in the position of having nothing to gain by refusing to sell Twitter and much to lose in litigation and possibly SEC fines for violating their primary Fiduciary Duty of putting shareholder interests first. Musk offered more for each share than it was worth. Welcome to the world of publicly-traded capitalism.

Anyway, I know the pundits are putting out face-savey type narrative. From my armchair over here, I’m seeing that the board had no choice but to sell.

Matt Levine has been talking about this in most of his recent newsletters. Today's includes a play by play overview of the recent moves by Musk and the board along with explanation of why these steps happen the way they do: https://www.bloomberg.com/opinion/articles/2022-04-25/elon-c...

They will still, don’t worry.

When I was working in eBay the CEO said: "we will never split paypal". 2 weeks later the split was announced.

:)

money

What changed is that Elon Musk secured funding, making his offer much more credible and forcing the board to reconsider. The poison pill is still there for now but the board can remove it as easily as they added it.

The poison pill can be used by the board of directors in case of a "hostile" takeover of the company.

In the case of a non "hostile" takeover, meaning the board approves the takeover price there is no poison pill to be used.

I don't have to know, to know: $$$.

can someone explain why you'd spend $210/share rather than just buy on the open market at ~$50/share now? Are the $210 shares better in some way? Why would the $210 price double?

For a startup-oriented discussion place, it's shocking how little users know about how mergers/acquisitions/takeovers actually occur in the market.

Don't they teach this stuff anymore? I had to learn this in college, many years ago.

Of course, it was a little less likely for eccentric billionaires to just "shop" in the market like this for ultra-large corporations. Still. We at least knew how the processes worked.

Having zero knowledge of it, I would say that, since a poison pill is merely an option for existing shareholders to buy more shares, if they don't get enough takers for that option, then there's no news to print and no offer to compete with Elon's.