(CN) — Twitter introduced the poison pill Friday in an attempt to fend off the hostile takeover of Tesla CEO Elon Musk who says Twitter must be taken private to ensure it adheres to the principles of freedom of speech.
A poison pill is a strategy used by publicly traded companies attempting to prevent a hostile takeover by flooding the market with shares and allowing current shareholders to buy at a discount.
Twitter said it will use the strategy if anyone accumulates more than 15% of the company. In that case, the introduction of new shares into the market would dilute the value of those shares.
The strategy indicates Twitter will not acquiesce to Musk’s demands but is prepared to enter what figures to be a protracted battle over the future of the company.
“The Rights Plan will reduce the likelihood that any entity, person or group gains control of Twitter through open market accumulation without paying all shareholders an appropriate control premium or without providing the board sufficient time to make informed judgments and take actions that are in the best interests of shareholders,” the company said in a statement Friday.
The statement came one day after Musk announced he would attempt to buy out the company at $54.20 per share, which is well above the current price of about $45 per share, but also well off its all-time high of about $73.
Musk has been accumulating Twitter shares since late January and announced this month that he has a 9.2% stake in the company.
Twitter said its plan will remain in place until next year.
Musk, talking at a TED Talk Thursday, acknowledged his bid for Twitter might now work, but that he has other alternative plans aimed at taking over the social media platform.
However, a deal is still possible.
Due to the rules of corporate governance, Twitter’s board of directors has a fiduciary duty to act in the best interest of its shareholders and some are arguing Twitter is not in a legal position to refute the deal.
In Friday’s release, Twitter acknowledged an outside acquisition is still possible.
“The Rights Plan does not prevent the board from engaging with parties or accepting an acquisition proposal if the board believes that it is in the best interests of Twitter and its shareholders,” Twitter said.
Others are arguing that Musk’s offer does not sufficiently reflect the company’s true value and that Twitter board members would be failing in their duty to protect shareholders by accepting the offer.
Poison pills are also viewed with the same type of hazy complexity, as some argue they should never be used because they limit shareholder rights. Musk has been calling for the company to allow shareholders to vote directly on his proposal rather than rely on proxies on the board.
Other market watchers say the poison pill was a crucial device that allows companies to fend off acquisitions from corporate raiders intent on radically changing a given company.
“The Rights Plan is similar to other plans adopted by publicly held companies in comparable circumstances,” Twitter said in its statement.
The move will mean Musk will have to buy shares from those who already own it.
On Friday, it was revealed that Vanguard, which offers a slate of mutual funds and exchange-traded funds, is the largest shareholder at just over 10%. Morgan Stanley, BlackRock, former CEO Jack Dorsey and Cathie Wood, the manager of Ark Investments, are other large shareholders.
Prince Al Waleed bin Talal, who described himself as Twitter’s second-largest shareholder, said Musk’s offer of $43 billion was lowball as he believes the company is worth more.
Many market analysts agree.
Musk said his bid is not based on economics but on the importance of free speech and transparency on Twitter.
A major overarching argument between liberals and conservatives in America focuses on the concept of content moderation on social media. Exasperated by vaccine hesitancy, conspiracy theories and an electorate that refused to accept Joe Biden’s victory over Donald Trump, liberals argue Twitter has a duty to prevent the spread of false information.
Some liberals argue misinformation has deadly consequences as misinformation about the effectiveness of Covid-19 vaccines has caused people to decline to get them, which in many cases has proved a fatal miscalculation.
Conservatives argue that false information is often just facts or opinions that cut against orthodox liberal positions and further accuse their political opponents of using content moderation as a censorship tool in order to tilt the public discourse in their direction.
There have been several prominent examples of individuals or outlets being suspended by social media for misinformation, only to be vindicated later. The most prominent recent example was a controversy over Hunter Biden’s laptop, which reportedly contained information about the Biden family trading in on Joe Biden’s name to secure lucrative sinecures on corporate boards around the globe.
The New York Post had their Twitter account suspended for the story in the run up to the election, although Twitter now contends it was the result of an internal error and not an attempt to steer the election toward a preferred candidate.
One of the things cemented by the latest fracas between Musk and company executives is that Twitter is an integral piece of American politics.
While it doesn’t have the user numbers of Facebook, Instagram and TikTok, it is arguably much more important in the overall public discourse. Musk said that Twitter’s influence in society is the reason he has sought its purchase. “My strong intuitive sense is that having a public platform that is maximally trusted and broadly inclusive is extremely important to the future of civilization,” he said in a Thursday interview.
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