Hot off the heels of Elon Musk looking to attempt a hostile takeover of Twitter (NYSE: TWTR), it appears the board of directors have hastily adopted a shareholder rights plan, that is, effectively, a poison pill. The rights plan was adopted by this morning by the firms board.
The intent of the plan is to “reduce the likelihood that any entity, person or group gains control of Twitter through open market accumulation,” thereby limiting such entities from avoiding the payment of an appropriate premium to acquire a sizable stake in the company. The plan is said to “enable shareholders to realize the full value of their investment in Twitter,” by enabling the board to properly evaluate any proposed offers.
The shareholder rights plan effectively limits any one entity or individual from acquiring in excess of a 15% stake in the company, similar to the proposed regulation that were to be applied to Musk under his now-rejected board appointment. The rights plan is set to be in place through to April 14, 2023.
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In terms of the mechanics of the plan, if triggered, the plan will enable current shareholders, except for those responsible for triggering the plan, to acquire additional shares of the company so as to dilute the equity ownership of those that have triggered the plan.
Shares acquired under the rights plan will be purchased “at the then-current exercise price, additional shares of common stock having a then-current market value of twice the exercise price of the right.” In layman terms, it appears shares will be sold to those with shareholder rights at a 50% discount to the current trading price of the company at the time of triggering.
The theory behind this strategy appears to be that continuous dilution of the equity will enable the hostile takeover party to eventually give up on the attempted takeover. Whether it actually works, and whether shareholders actually approve of such a strategy, remains to be seen.
Twitter last traded at $45.08 on the NYSE.
Information for this briefing was found via Edgar, Twitter and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
