Twitter Presents Musk with Poison Pill

Following Elon Musk is exhausting. Absolutely exhausting. Driven by an apparently insatiable need for public attention, the latest in an interminable series of headline-grabbing stunts from the CEO (sorry, “Technoking”) of Tesla involves a bid for the social media platform Twitter.

As Bloomberg columnist Matt Levine wrote last week, the idea of Musk even cobbling together the financing for what looks like an underwhelming offer to shareholders of Twitter warrants skepticism. Rather than waiting to find out if Musk’s bid will unravel of its own accord, however, Twitter is using a controversial maneuver to rebuff his advances.

Twitter’s board of directors formally announced in an 8-K filing with the Securities and Exchange Commission that in response to Musk’s offer, it had voted unanimously to adopt a limited-duration shareholder rights plan. Better known as a “poison pill,” the move would allow Twitter shareholders besides Musk to buy additional stock at a deep discount if the ownership stake of any stockholder reaches 15% of the company’s shares without the board’s consent. The poison pill would effectively short circuit Musk’s attempted takeover by diluting his stake in the company.

Corporate governance experts generally take a dim view of poison pills like the one implemented by Twitter because they can help management teams avoid accountability from shareholders. ISS’s Taft-Hartley Advisory Services, for example, characterizes them as “among the most onerous takeover defenses that may serve to entrench management and have a detrimental impact on their long-term share value.” Broadly speaking, the firm recommends voting against or withholding votes from nominees of boards of directors for companies with poison pills that weren’t approved by shareholders.

Bad governance or not, companies sure do find poison pills handy in a pinch. Last month, Rayonier Advanced Materials Inc. put one into place after hedge fund Chatham Asset Management took a $25 million equity stake in the company. In a Schedule 13-D disclosure, Chatham said it planned to let Rayonier Advanced know its thoughts on increasing shareholder value (none of which include “adding an edit button”). A similar drama played out at WisdomTree Investments, Inc. in March after ETFS Capital began buying up the company’s stock shares and put forward three nominees for the WisdomTree board of directors.

As for Twitter, the poison pill filing doesn’t name Musk specifically. The language still makes it clear how the board members feel about the hostile takeover attempt. Set to expire on April 14, 2023, the poison pill “will reduce the likelihood that any entity, person or group gains control of Twitter through open market accumulation without paying all shareholders an appropriate control premium or without providing the Board sufficient time to make informed judgments and take actions that are in the best interests of shareholders.” Importantly, Twitter can still engage in acquisition talks with other buyers while the poison pill remains in place.

So it looks as though Musk won’t be taking control of the social media company any time soon. That didn’t stop Musk from taking to his own account to pile on Twitter’s board of directors. The poison pill might stop his takeover bid, after all, but it can’t touch the dopamine rush of a viral tweet.