Twitter activates the poison pill and stops Elon Musk

As they had anticipated in recent days, Twitter’s board of directors activated their plan to stop the Elon Musk’s intentions to acquire 100% of the company. Twitter has activated the so-called poison pill, a new rights plan that it has already signed and submitted to US market regulator, the SEC, via Form 8-K.

The Twitter Board is quite explicit in the statement of reasons sent to the SEC (the United States Securities and Exchange Commission) of its agreement of April 15, for its announcement on the market, specifying that the decision taken for the issuance new rights to the shares (and therefore the dilution of the value of the current shares) has the ultimate goal protect shareholders against coercive or unfair takeover tactics.

Generally speaking, the decision adopted is nothing more than a mechanism by which a virtual sanction to any person or group that acquires 15% or more of the common stock without board approval. The line that Elon Musk would have to cross to gain more power within the company as a majority shareholder.

On April 15, 2022, the board of directors (the “Board”) of Twitter, Inc., a Delaware corporation (the “Company”), authorized and declared a dividend distribution of one right for each common share in outstanding, with a par value of $0.000005 per share (the “Common Shares”) of the Company to shareholders of record at the close of April 25, 2022 (the “Record Date”). Each Right entitles the registered holder to purchase from the Company one thousandth of the Series A Participating Preferred Shares, with a par value of $0.000005 per share (the “Preferred Shares”), of the Company at a price of exercise of $210.00 (the “Preferred Shares”).

Excerpt from Twitter’s 8-K to the SEC

Twitter Board sets 15% for poison pill to activate

As the report filed with 8-K confirms, if Musk or any other shareholder or fund exceeds this threshold (15%), the rights plan becomes binding, and thus authorizes its holders to acquire, at the exercise price then in force, additional shares making up the share capitalI. In a nutshell, the value of the shares is diluted to prevent a massive acquisition by a third party from taking over the company:

If an acquirer obtains beneficial ownership of 15% or more of the Common Shares, each Right will entitle the holder thereof to purchase, for the Exercise Price, a certain number of Common Shares (or, in certain circumstances, cash, property or other securities of the Company) with a then prevailing market value equal to twice the exercise price.

Excerpt from Twitter’s 8-K to the SEC

The mechanism will be in effect until April 14, 2023, so until now Elon Musk will have to find another mechanism to take control of Twitter.