May 17, 2022

Dubai Week

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Will Elon Musk thwart Twitter’s acquisition plan?

The so-called “poison pill” labeled by Twitter against Elon Musk represents a mechanism of proven effectiveness that will force the American millionaire to enter into negotiations to gain the platform without doing so unanimously.

The company’s board of directors plans to launch a “poison pill” if Tesla’s CEO buys more than 15% of the stock market to prevent Musk from acquiring Twitter.

Musk basically owns 9.2% of the company and announced on Thursday that it has received $ 46.5 billion needed to issue the remaining shares.

Acquisition of more than 15% of the company’s shares would allow all shareholders except Musk to buy the stock at half price, which would plunge the market with traded shares, thus reducing the percentage of Musk’s shares he acquired on Twitter. More difficult.

Even if the billionaire spends more than he thinks, it will be almost impossible to take control of the company.

Eric Worley, an assistant professor of finance at the University of Western Washington, explains that the declining shareholding percentage of shares due to the issuance of new shares as a result of this defensive measure generally plays its blocking role.

History of the “poison pill”

Business lawyer Martin Lipton developed the “poison pill” 40 years ago to counter the buying waves on Wall Street.

Lipton told The Deal in 2011 that it was the “age of corporate riders”, a new type of investor who had mastered financial engineering through Kirk Kerkorian, from the investment firm Golberg Gravis Roberts to Carl Icon.

It was first legalized by the Delaware Supreme Court in 1985 after the process was quickly challenged, with Twitter relying on the company being in California.

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John Karpov, a professor at the University of Washington, said half of the listed companies were set up in Delaware’s loose tax system, which strengthened the judiciary over its poison-grain operations.

He adds, “If it’s not something unusual in Twitter’s plan, Musk’s chances of winning the court and removing the mechanism are slim if he rejects it.”

Brian Quinn, an assistant professor at Boston College, said: “I do not think this case will go to court because Elon Musk has no legal arguments to win.

Negotiation

Quinn points out that the first alternative to acquiring Musk’s majority in the company is to replace the board of directors and establish members affiliated with the entrepreneur.

But the agenda for Twitter’s next public meeting on May 25 is already set, meaning Elon Musk will have to wait for the next meeting in 2023.

The second hurdle he faces is that the removal of the board of directors will only be possible in the constituencies, and while the membership of some members will end this year, others will continue in their positions until 2023, 2024 or 2025, and Musk will at least have to wait. 2024 to get a majority of seats on the board of directors.

“No buyer has ever changed the ‘poison pill’ mechanism on the board of directors in two consecutive elections,” says Brian Quinn.

Quinn believes that Musk’s only option is to negotiate with the board of directors, proposing a higher bid to acquire the company, without guaranteeing the success of the move.

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If Musk seeks talks, he will not be able to trust Twitter founder and former CEO Jack Dorsey unless there is a quick solution.

Dorsey has repeatedly publicly expressed sympathy for the 50-year-old millionaire, echoing Musk’s criticism of the group.

After his resignation last November, Jack Dorsey announced that he would not be running for the new position as director and would step down from the board of directors after a public meeting.

John Karpov, Musk, points out that in parallel to the negotiations, he should start his case with shareholders, the billionaire first started via Twitter.

In the crowd

“I think his reputation with a lot of people will help him,” says Karpov, “and I would not be surprised if he mobilizes small investors to help put pressure on the board.”