The « poison pill » brandished by Twitter against Elon Musk is a mechanism with proven effectiveness, which could force the fiery entrepreneur to negotiate for lack of power.
To prevent a takeover, the board of directors plans to activate the « pill » if the CEO of Tesla reaches 15% of the capital of Twitter on the stock market.
He currently owns 9.2% and said Thursday that he had raised the necessary funding to launch an offer for the rest, for an envelope of $46.5 billion. From 15%, all shareholders other than Elon Musk could then buy shares at half price, which would increase the number of shares in circulation and dilute the weight of the insatiable billionaire.
It would then be almost impossible for him to take control of the company, except to spend a sum significantly greater than the envelope initially planned.
“The dilution created by this defense generally plays its role of deterrence”says Eric Wehrly, assistant professor of finance at Western Washington University. The « poison pill » was invented 40 years ago by business lawyer Martin Lipton to counter the wave of hostile acquisitions underway on Wall Street.
« It was the era of the ‘raiders' »explained in 2011, to The Deal, the lawyer, an era embodied by these investors of a new kind, experts in financial arrangements, from KKR to Carl Icahn, via Kirk Kerkorian.
Quickly challenged in court, the practice was validated for the first time in 1985, by the Supreme Court of Delaware, on which Twitter depends, even if the group is Californian.« Half of the listed companies were created in this state »advantageous taxation, « who has well established the case law on poison pills »explains Jon Karpoff, professor at the University of Washington.
« Unless there is something unusual about the pill, which I doubt, (…) Mr. Musk would have little chance of winning in court » and to cancel the mechanism, he believes.« I don’t think it will go to court, because Elon Musk has no legal basis » to triumph, abounds Brian Quinn, assistant professor at the University of Boston College.
Negotiate and rally
The first alternative to acquiring a majority stake « is to change the board »details Brian Quinn, and to install allied members there.
But the list of resolutions for Twitter’s next general meeting, set for May 25, has already been decided, which means that Elon Musk could not intervene before the next GA in 2023.
Second obstacle, the board of directors can only be renewed in installments. Some members end their term this year, while others are guaranteed to be there until 2023, 2024 or even 2025. To obtain a majority on the board, Elon Musk would have to wait at least until 2024.« There is no precedent of a purchaser circumventing the pill by replacing the board in two successive elections »warns Brian Quinn.
For the law professor, given the configuration, « the only option is to negotiate with the board »presumably by offering an upwardly revised offer, without any guarantee of success.
In the event of talks, Elon Musk will not be able to count on the emblematic former leader of Twitter Jack Dorsey, unless there is a quick settlement. The co-founder of the platform has several times publicly expressed his sympathy for the fifty-year-old billionaire, to the point of echoing his criticisms of the board of directors.
After his resignation last November, Jack Dorsey announced that he would not seek a new term as director and would leave the board at the end of the AGM. Often, parallel to the negotiations, according to Jon Karpoff, the potential buyers campaign, which Elon Musk has already begun to do, mainly, ironically, by using Twitter.
« And I think his popularity with a lot of people will help him »anticipates the university. « I wouldn’t be surprised if he rallied small holders (…) to help him put pressure on the board ».
#happen #Elon #Musk #reaches #Twitters #capital #precedent
