The Twitter Board Adopts a Poison Pill

The Twitter Board Adopts a Poison Pill

 The Twitter Board Adopts a Poison Pill

It was announced today that the Twitter board of directors adopted what’s known as a poison pill strategy in order to prevent any hostile takeover attempts. The move comes after Tesla founder Elon Musk attempted to buy the company for 43$ billions, hoping to buy it out completely and take it private. In response, the board has decided to create an anti-takeover measure that would make it prohibitively expensive for anyone to acquire more than 10% of the company.

What is a poison pill defense?

The idea behind a poison pill defense is to discourage an unwanted takeover by making it undesirable for anyone to purchase enough stock in your company to take control. One common poison pill strategy involves issuing extra shares of preferred stock that give shareholders voting rights but are otherwise worthless. These extra shares also dilute any potential acquirer's stake, increasing resistance to a takeover attempt. For example, if one shareholder owns 50 percent of all outstanding shares before a merger, he or she would own only 30 percent after an acquisition using poison pills. Another way companies implement poison pills is by offering investors new stock options and other incentives if they hold on to their existing holdings through an unsolicited buyout attempt.

A history of poison pills

The idea behind a poison pill defense is to make an acquisition financially unappealing. This can be done in several ways, such as by issuing new shares or paying large dividends on outstanding shares (the anti-takeover equivalent of red-lining). But there’s one way in particular that companies have used since 1984 that has come to define a true poison pill: They increase their leverage to unattractive levels by borrowing money—often from investors who have pledged their loyalty only to have it repaid with devalued shares. Since these newly issued shares can be bought back when they're under pressure, they act as another defensive barrier against hostile takeovers.

How does it work?

A company’s board of directors may decide to adopt a poison pill defense, or poison pill strategy, in order to prevent an unwanted takeover. A poison pill is a plan that shareholders can vote for or against during shareholder meetings. The plan gives shareholders new rights that are triggered when another company makes an offer to buy all or some of their shares. In essence, it allows board members and other shareholders to purchase additional shares and make it more difficult for potential buyers to successfully complete an acquisition. To understand how it works and how long-term shareholders may benefit from owning company stock during proxy fights, read on!

What can go wrong?

One of many reasons to implement a poison pill strategy is to prevent companies with designs on acquiring you from doing so. As noted above, one of those designs is having shareholders vote against your company's proposal. Because if they do, you'll be forced to shop around for other potential buyers or risk potentially losing everything. That latter part—having shareholders vote against your proposal—is what's known as an anti-takeover device, which may be considered unfair (and therefore illegal) by federal law.

Also read : 

Post a Comment