Twitter launches a plan to stop Elon Musk’s hostile takeover: It’s a ‘poison pill’

The tycoon has made a $43 billion takeover bid for the company.

Twitter on Friday announced a measure it intends to delay or block Tesla CEO Elon Musk’s acquisition of the company.

The move, known in the business world as a “poison pill,” was designed to complicate Musk’s purchase of more than 15 percent of Twitter, which Musk already owns 9 percent.

Twitter’s announcement comes a day after Elon Musk, the world’s richest man, made a $43 billion bid for the social network and threatened to sell all his stake in the company if his takeover bid was rejected.

What is a poison pill?
The “Poisoned Pill” strategy includes a series of special rights granted to some shareholders, allowing them to receive discounts on new shares for free or at a steep price in the face of a hostile takeover offer (OPA). The action acted as a deterrent to those pushing for the offer — in this case Musk — because the value of the shares, as well as their voting power, was reduced.

In this sense, there are two ways to achieve this:

Existing shareholders (other than the buyer who initiated the takeover offer) are allowed to purchase additional shares at a discount. In this way, investors receive immediate gains, diluting the acquirer’s stake. This means that attempts to make a takeover offer are complicated and more expensive to acquire the company.

Another option is to allow shareholders to buy shares of the person who initiated the takeover bid at a discount, but only after a future merger. In other words, in this way, shareholders have the right to buy shares in the acquirer, which conditions the plan after the fact and gives them privileges in the next scenario, a merger.

The tycoon has made a $43 billion takeover bid for the company.