In the latest twist of events between Tesla's boss Elon Musk and microblogging platform Twitter, Twitter's board of directors, in reply to Musk's attempt to buy over the platform and take it private in a $43 billion bid, have jointly agreed to activate the Rights Plan.
Last Friday, the disclosed details to the US Securities and Exchange Commission.
Informally referred to as the ‘Poison Pill’, The Rights Plan is a strategy companies deploy against an aggressive takeover. It has been around for decades, and it's known to work. The strategy is deployed to wade off Musk's unsolicited takeover bid.
The approach becomes effective when an individual or entity, in this case, Musk, acquires more than a 15% stake in a deal not approved by the board, forcing Twitter, without authorisation from it, to flood the market with its shares. Hence permitting shareholders to acquire more shares at a discount as well as neutralising his shares and keeping the board in control against an unsolicited takeover. The plan is expected to last until April 14, 2023.
The approach deployed by the board will lower the chances of an individual or entity securing command over the platform via open market accumulation without paying all shareholders a control premium. Also, allowing the board enough time to make an informed decision in the forum's interest. The board also noted that the strategy does not stop it from considering future bids as long as it is in the best interest of the firm and its shareholders.
Options open to Musk
The Tesla boss is reportedly in discussions with other investors to support and partner with his $43 billion bid to acquire the microblogging platform. He could collaborate with Silver Lake Partners - an international equity outfit that focuses on investment in .
Musk could also acquire the platform through a "proxy fight", a situation whereby the company's shareholders vote to maintain or evict the board's current directors. Musk can also approach the court to contest the board's plan, but success via this route is not guaranteed as no court has overturned the poison pill in three decades.
Some of Twitter's investors, including Saudi Prince Alwaleed bin Talal, have already voiced their displeasure about Musk's proposal, and the takeover attempt has further been waded off as Vanguard Group has its stake to 10.2% of Twitter, a higher stake than Musk’s and the firm is possibly not going to sanction the takeover attempt.
Image source: Shutterstock
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