The company on Friday adopted a so-called poison pill that made it difficult for Musk to increase his stake to more than 15%. The billionaire founder of Tesla Inc already has a stake of over 9% which he disclosed earlier this month.
Poison pills, also called shareholder-rights schemes, are legal maneuvers that make it harder for shareholders to build up their share beyond a set point by triggering the option to buy more shares at a discount. Invented in 1982 by renowned corporate lawyer Martin Lipton, they are often used by companies that receive hostile takeover bids to block an unwanted mover or buy time to consider their options.
In the case of the Twitter bullet, if Mr. Musk or someone else takes control of 15% or more of Twitter’s shares, all other shareholders will have the right to purchase additional shares at effectively half price. This will quickly dilute Mr. Musk’s stake and make it expensive to buy more shares. The pill, the exact details of which Twitter said it would provide in an upcoming filing, remains in effect for about a year.
Twitter said in a statement that the rights plan does not prevent the company from engaging with potential acquirers or accepting a takeover bid if the board determines it is in the best interest of shareholders. It had previously confirmed that it had received Mr Musk’s offer and was reviewing it.
The Wall Street Journal reported Thursday that Twitter is considering injecting a poison pill.
Mr Musk may not be the only contender for the company, as people familiar with the matter say Thoma Bravo LP and other private-equity firms are still doing the rounds. But just because they are running the numbers doesn’t mean any firm will make a formal bid or that such a deal will come together.
Taking Twitter private would be no small feat; In fact, private-equity firms have explored and decided against it in the past. It would rank as one of the largest leveraged buyouts ever, and Twitter doesn’t have the characteristics of a typical LBO target like strong, steady cash flow. It is possible that buyout firms are also eyeing something less than a complete takeover.
The New York Post previously reported on Thoma Bravo’s interest in Twitter.
The private-equity firm, which specializes in the technology sector and manages nearly $100 billion, has been busy lately in times of increased buying activity. It bought Anaplan Inc. for $10.7 billion in March. And a few days ago SailPoint Technologies Inc. agreed to buy it for $6.1 billion.
Musk, Tesla’s billionaire founder and privately held rocket company SpaceX, offered to pay $54.20 per share for Twitter, saying it was his “best and final” bid. He has been critical of how Twitter handles content, among other things, and agreed to join its board sometime this month before backing down.
Their takeover offer has prompted speculation that a white-knight bidder such as another technology company or private equity firm may come across as an alternative to a deal with an unpredictable and outspoken entrepreneur.
One possible consequence is that Twitter rejected Mr Musk’s offer as too low, but left the door open for him to return with a high, some said. Mr Musk said that if the offer is not accepted, he would reconsider his position as a shareholder of the company. He has also said that he has a Plan B, without giving details.
A big question is how Mr Musk will fund a deal. Although he is the richest man in the world, most of his wealth is tied up in Tesla shares and his proposal did not detail financing plans, which is as unusual as other aspects of the bid. The Journal reported Thursday that Morgan Stanley will provide some debt financing for the bid and that Mr. Musk has received approaches from investors interested in backing it.
Joe Lonsdale, an Austin, Texas, venture capitalist and co-founder of Palantir Technologies Inc., “are multi-billionaires eager to fund whatever Elon wants to do.”
One big name that isn’t planning on making the money is Peter Thiel, a longtime associate of Mr. Musk, dating from his days as an executive at PayPal Holdings Inc. While Mr. Thiel, a fellow billionaire who has invested in several Mr. Musk. Musk’s companies have expressed wide support to friends for Mr. Musk’s vision for Twitter to be anything-goes, with no plans to support any of his bids, according to people familiar with his plans.
Existing Twitter shareholders who support Mr Musk can also rollover their stake in any deal.
But in a sign that Twitter investors appear less enthusiastic about Musk’s bid, shares of the company fell nearly 2% on Thursday to close at $45.08. The market remained closed on Friday due to the Good Friday holiday.