Twitter board approves poison pill to block Musk's takeover bid

Twitter, Inc. (NYSE: TWTR) announced on Friday that its board of directors unanimously approved a Limited Duration Stockholders Rights plan in response to Elon Musk's proposal to acquire Twitter.

The plan, commonly known in financial circles as a poison pill, is a defensive strategy that companies can use to protect themselves from hostile takeovers. It will be in effect until April 14, 2023, according to the statement.

Essentially, the strategy allows shareholders to purchase additional company stock at a discount, issuing additional company shares to existing shareholders, effectively diluting the acquirer's holdings and making the acquisition more expensive, according to the Legal Information Institute at Cornell Law School.

According to the company's statement, Twitter's poison pill can be exercised whenever any entity purchases 15% or more of Twitter's stock in a transaction not approved by the board of directors. If triggered, the right holder will have the right to purchase additional shares of the company.

Twitter said: "The rights plan will not prevent the board from engaging with parties or accepting acquisition proposals if the board determines that this is in the best interests of Twitter and its shareholders."

Twitter’s response is the latest twist in the saga between the world’s richest man and the social media site, which saw Musk buy a 9.2% stake in Twitter last month, days before refusing to join the company’s board. On Thursday, the billionaire offered to buy Twitter for $41.4 billion in cash. Musk said his goal was to ensure Twitter remained an inclusive platform for free speech.

Bitpush previously reported that Musk revealed at TED2022 in Vancouver on Thursday that there is a plan B if the acquisition offer is rejected, but declined to elaborate.

Wall Street's attitude

Wall Street analysts are skeptical of Musk's proposal, in other words, investors don't think the deal will happen.

"While we agree with Mr. Musk's assessment that Twitter is a poorly monetized platform, we expect the board and major shareholders to resist this proposal due to philosophical differences," said analysts at Mizuho Securities.

Analysts said one big concern the board may have is that "Musk has limited time to focus on Twitter given his role as CEO of multiple tech companies, including Tesla, SpaceX and The Boring Company."

On the other hand, does Musk have enough financial resources to make the acquisition?

Musk is worth about $265 billion, according to Forbes, but most of it is held in the form of equity in Tesla and SpaceX. He sold more than $12 billion worth of Tesla stock at the end of 2021, which is still just a fraction of Twitter's $43 billion offer price.

David Trainer, CEO of stock research firm New Constructs, believes that the bid is "Musk's desperate attempt to attract attention." David Trainer analyzed: "The acquisition offer was made only because Twitter is Musk's most popular place. Apart from his 'rock star' status, Musk has not brought any operational value to Twitter shareholders, which is not enough to change Twitter in the long run."

Stifel analysts downgraded Twitter's stock rating to "sell," and the firm expects Twitter's revenue to be $5.87 billion and $6.98 billion in 2022 and 2023, respectively, down from previous estimates of $5.98 billion and $7.08 billion.