Two days after Elon Musk made an offer to buy 100 percent shares of Twitter to make the company private and a bastion of free speech, Twitter has decided to adopt a “poison pill’ strategy
Elon Musk, who owns nine percent of Twitter’s shares, offered to buy the company. Twitter has decided to adopt a “poison pill’ strategy. Poison pills are common among companies when faced with hostile takeover situations.
About poison pill strategy:
- Officially known as the shareholder rights plan, it allows existing shareholders to purchase additional shares in a company at a discount, effectively diluting the ownership interest of the hostile party.
- Twitter announced that the plan would take effect if Musk’s stake, which is currently at 9%, grows to 15% or more, i.e., if the Tesla CEO buys more than 15% of the company, Twitter will allow all shareholders except him to buy more shares at a discount.
- It will make the buyout costly for Elon Musk, effectively diluting his ownership interest.
- Although the strategy is supposed to help prevent a hostile takeover, poison pills frequently open the door to more discussions, forcing a bidder to sweeten the deal.