Twitter adopts ‘toxic pill’ defense in Musk takeover attempt

PROVIDENCE, RI — Twitter said Friday that its board of directors has unanimously adopted a defense of the “toxic pill” in response to Tesla CEO Elon Musk’s proposal to buy the company for more than $43 billion and make it private.

The move would allow existing Twitter shareholders – with the exception of Musk – to buy additional shares at a discount, thereby weakening Musk’s stake in the company and making it difficult for him to muster the majority of shareholder votes in favor of the takeover.

Twitter’s plan will take effect if Musk’s roughly 9% stake grows to 15% or more.

The toxic pill is injecting another turn in the melodrama surrounding the possibility of the world’s richest person taking over a social media platform he described on Thursday as the world’s “actual city square”.

Twitter said its plan would make it less likely that anyone could take control of the company without paying shareholders a premium or giving the board more time to evaluate the offer. These defenses, formally called shareholder equity plans, are used to prevent a hostile takeover of a company by making any acquisition prohibitively expensive for the bidder.

Even if that discourages his takeover bid, Musk can still take over the company by fighting a “proxy battle” in which shareholders vote to retain or remove existing company directors. Twitter said its plan does not prevent the board of directors from negotiating or accepting a takeover offer if it is in the company’s best interest.

“They’re preparing for a fight here with Musk,” said Daniel Ives, an analyst at Wedbush Securities. “They also have to give themselves time to try and find another potential buyer.”

Musk has offered to buy the company outright for more than $43 billion, saying it “needs to go private” in order to build trust with its users and do a better job of serving what he calls a “community imperative” for free speech. .

“Having an extremely reliable and broadly inclusive public platform is critical to the future of civilization,” he said during an onstage interview at Thursday’s TED event, just hours after announcing his presentation.

With nearly 82 million followers on Twitter, Musk is a prolific user of the platform and an outspoken critic of the measures it has taken to restrict accounts that spread misinformation or amplify violent and hate speech. On Thursday, he said he opposes permanent bans on users — most notably Twitter’s suspension of former President Donald Trump’s account following the riots at the Capitol on January 6.

Musk revealed in recent regulatory filings that he was buying Twitter shares in roughly daily payments as of January 31, ending up with a stake of about 9%. Only the Vanguard Group controls more Twitter posts. A lawsuit filed Tuesday in New York federal court alleges that Musk illegally delayed disclosing his stake in the social media company so he could buy more shares at lower prices.

After Musk announced his stake, Twitter quickly offered him a seat on its board of directors on the condition that he limit his purchases to no more than 14.9% of the company’s outstanding shares. But the company said five days later that Musk refused.

Ives said the toxic pill’s trajectory on Twitter is a predictable defensive maneuver but one that could be seen as a “sign of weakness” for the company on Wall Street.

John Coffey, a Columbia University law professor, said Musk may try to fight the procedure in court, but “no court has struck down toxic birth control pills in the past 30 years.” Covey said mobilizing shareholders to fire the board may be more doable but also present challenges to Musk.

Musk’s show actually ran into resistance before Twitter delivered its Friday counter-punch.

A Saudi prince, a major contributor to Twitter, mocked Musk’s offer in a tweet he posted on Thursday. Alwaleed bin Talal said he would reject Musk’s initiatives because he does not believe the $43 billion is “close to the intrinsic value of Twitter, given its growth prospects.” The prince permeated another tweet from 2015 revealing that his kingdom company raised its stake in Twitter to 5.2% – about half of what Musk now owns.

While Musk’s bid of $54.20 per share is nearly 40% more than Twitter’s stock price before he revealed his hefty investment, it’s still well below the closing price peak of $77.63 reached less than 14 months ago. At the time, Twitter was worth about $62 billion.

Musk responded to the prince with a tweet asking how many Twitter shares he has, then pointing to what may be a veiled reference to the 2018 killing of journalist Jamal Khashoggi, who has been linked to Saudi Crown Prince Mohammed bin Salman. “What is the Kingdom’s view of freedom of press expression?” asked Musk in a tweet Thursday.

In a sign that investors were skeptical of Musk’s offer, Twitter’s stock fell on the first day of trading after the takeover offer was announced on Thursday — the opposite of what the market’s approved reaction appears to be. Stock markets were closed on Friday for the Good Friday holiday. Twitter said it plans to release more details of the shareholder plan in an upcoming regulatory filing.

Another outspoken billionaire, Dallas Mavericks owner and tech investor Mark Cuban, took to Twitter to share his theory that Musk is doing his best to beat the company’s stock price so he can sell his stake at a profit. Using the term mundane, Cuban also hypothesized that Musk was using an attempt to torture the US Securities and Exchange Commission, the securities market regulator that fined Musk $20 million in 2018 after he tweeted about a potential purchase of Tesla that never materialized.

At a TED event on Thursday, Musk made it clear that he remains angry with the Securities and Exchange Commission and cursed regulators.


Author Michael Lidtke, a technology writer for the Associated Press in San Ramon, California, contributed to this report.