Twitter’s board of directors said Friday it was implementing a shareholder rights plan known as the “poison pill,” which would make it harder and more expensive for Musk (or any other potential buyer) to acquire the company without board approval. The plan came a day after Musk made an offer to buy all the shares in Twitter (TWTR) he doesn’t own for $54.20 apiece, valuing the company at around $41 billion. That’s a 38% premium over Twitter’s closing price the day before Musk’s large holding was announced, triggering if Musk (or another investor) increases his stake in the company to 15%; he currently owns around 9% of the shares. It would give all other shareholders the right to buy an additional share at a discount for every share they own. While other shareholders who exercise their rights to purchase new shares under the plan would have to pay $210 for each new share they buy, Musk (or another hostile investor) would have to pay $420. (Twitter’s team proved that Musk isn’t the only one able to spice up a serious corporate confrontation with marijuana innuendos.)
Now, eyes are turning back to Musk to see how he might respond to the board’s defensive move.
“It is all now becoming a high stakes poker game between Musk and the board of Twitter, with the coming week likely to be eventful as we expect to hear formally from both parties on their next move in this MMA battle for Twitter,” Wedbush analyst Dan Ives said in an investor note on Sunday.
With the poison pill making the prospect of a Twitter acquisition more difficult for Musk, he may decide to back down his bid, holding back and exercising the still significant influence he would have in the company as one of the largest shareholders.
But for Musk – who said just last week he doesn’t like losing – that could be an unlikely course of action. Musk said in his tender offer letter, “I have no confidence in management, nor do I believe I can drive the necessary changes [at Twitter] in the public market,” adding that he may reconsider his position as a shareholder if the board rejects his offer.
Musk said in an interview at the TED conference last week that he has a “plan B” if his offer falls through, though he declined to elaborate on what that is.
Will he make a takeover bid?
Media and industry pundits have been following Musk’s Twitter feed breathlessly for any clues as to his next moves, a testament to the unusual nature of the situation. Some wondered if his tweet hinted on Saturday, with the phrase “Love Me Tender,” that he’s considering bypassing the Twitter board by offering to buy shares en masse directly from other shareholders via a takeover bid. (Alternatively, he might have just had an Elvis kick this weekend.)
A takeover bid could potentially be another trigger for the poison pill. However, Musk could make a conditional takeover bid that would make the sale of the shares conditional on the Twitter board pulling the pill, said Ele Klein, partner and head of the M&A and securities group at law firm Schulte, Roth & Zabel.
“The theory of this is that if shareholders offer that condition, he hasn’t violated the poison pill by not closing it … and if enough people bid, he can tell the company, ‘Look, I have the shares ready to go.’ give, the only reason they can’t is because you, the board, are blocking the will of the shareholders,” Klein said.
Will he negotiate with Twitter’s board of directors?
Musk could also respond to the poison pill by outlining his funding for the deal and future plans for the company to gain support from Twitter’s board of directors for his bid. The poison pill filing said the plan is “intended to protect shareholders from coercive or otherwise unfair takeover tactics” but “would not interfere with any merger, takeover or swap offer or other board-approved business combination.”
“Given Musk’s antics over the years, as well as the comments at last week’s TED conference, [Wall] Street remains skeptical about this offer and more details need to be highlighted to onboard more investors and increase pressure on the board,” Ives said in his Sunday note.
According to M&A experts, he could make his bid more compelling by partnering with a private equity firm on the bid, which would help clear the deal’s financing and potentially increase his bid price. Some supporters of the saga have suggested that Musk could work with tech investment firm Silver Lake, which worked with Musk on his unsuccessful proposal to privatize Tesla in 2018, though the company’s co-CEO Egon Durban could sit on Twitter’s board of directors complicate matters. Wealth management and lending firm Apollo Global Management has been contacted by several parties considering offers for Twitter to potentially help fund a deal, a source familiar with the company confirmed to CNN Business Monday. It’s not clear whether they are parties to a Musk-related bid or other bidders. (The Wall Street Journal first reported the possible involvement of Apollo on Monday.)
Still, such a scenario could present challenges, as Musk and a potential private equity partner would need to agree on Twitter’s future vision and strategy.
“The board would probably have to consider that if a higher offer comes in with partners,” said George Geis, a professor of strategy at UCLA Anderson. But, he added, “when there are additional partners, everyone has to agree on what they’re going to do strategically with Twitter, and it’s an extraordinarily complicated environment given the political dimension of the transaction and the scale.” [Musk believes] Opinions should be able to be expressed on the website.”
Will the fight escalate?
In a far less friendly move, Musk could sue Twitter’s board over the poison pill, accusing it of not acting in the best interests of shareholders, though that would likely be a drawn-out battle. (And Musk’s delay in disclosing his large stake in Twitter, which the SEC might question, probably wouldn’t help his argument.)
Musk could also simply try to keep external pressure on the Twitter board to accept his deal, which he did repeatedly on Twitter over the weekend.
“He can keep saying, ‘The shareholders want this, why are you standing in their way?'” Klein said.
In the meantime, in addition to continuing to review Musk’s bid, Twitter’s board may solicit or solicit bids from other potential bidders. Reuters reported on Friday that buyout firm Thoma Bravo had reached out to Twitter about potentially making its own takeover bid for Musk’s competitor.
From the startling disclosure of Musk’s involvement and the whiplash of his acceptance and quick resignation from a position on Twitter’s board of directors, to his very public bid to buy the company, there was little textbook in his approach and a prolonged fight would almost feel disappointing .
“It’s a daily saga and so much unpredictability given the potential buyer [Musk] and what he could do,” said Geis. “Most of all, it will be fun to watch.”