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Ask HN: What happened to Twitter poison pill?

 7 months ago
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Ask HN: What happened to Twitter poison pill?

Ask HN: What happened to Twitter poison pill? 62 points by rukshn 2 hours ago | hide | past | favorite | 42 comments Last week it was said that Twitter's directors will take a poison pill instead of selling Twitter to Elon Musk.

What caused the board to change the direction 180 and now closing the deal with Musk?

Can anyone shed a light on that, I didn't see anyone talking about this.

The poison pill was intended to prevent a takeover without the board’s approval (buying 51% on the open market)

The board is negotiating an approved takeover which is entirely different

I.e. the board was saying “you can only buy Twitter if we say so”

There was no reversal of intentions

My read on it is that the shareholders didn’t want Musk controlling the company (owning 51%) and dragging them along with him. Being the absurdly rich person he is, he’d likely not care too much about how service changes would affect the stock price.

However they are quite happy to let Musk buy all of them out (owning 100%) at a reasonable price then let him do whatever marketshare-tanking moves he wishes. They don’t actually care about the fate of the company, they just don’t want to lose money.

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The board actually held a pretty minimal % of the company, I would not read anything into the average shareholder's view from the board's position.

Elon's next move was a tender offer which put the issue in front of shareholders for an up/down vote on a full buyout, which would sidestep any board poison pil.

The poison pill would only take effect if someone purchased >15% of shares on the open market—going around the board. Elon made an offer to the board directly which they can accept without triggering the poison pill.
The Poison Pill plan was from the Board, to stop Musk from following through with a hostile takeover. But Elon reportedly convinced numerous large shareholders of his plan[1]. Even if the Board isn't a fan of it, the Board of a publicly traded company is ultimately beholden to their shareholders, so if the shareholders are convinced, they need to consider it.

1. https://www.reuters.com/business/exclusive-twitter-under-sha...

Poison pill can be used for price negotiation, not just blocking an offer. Prevent hostile takeover and force the buyer into the negotiation table. They are now in the negotiation table.

The rumor is that the offer to be accepted is the same, so it wouldn’t have worked as intended, but that doesn’t mean it wasn’t worth trying.

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Not quite the same - pre-pill, Musk did not have funding lined up. Post pill, he produced written documents about how he was going to fund the buyout, and had to promise to buy all the shares, not just the first 51%.
The poison pill says elon cant buy more but current shareholders can buy more at a discount relative to the stock market. Basically Elon was just going to shell out slightly more money or fail and everyone who didn't buy is screwed.

It however takes shareholders to want to buy more. Twitter is quite undefended. Poison pill was never going to be effective in any major way. At most they were going to delay the inevitable here.

The media coverage of the poison pill was pretty bad, this was not going to be effective at stopping anything. The bigger news is why is Twitter so undefended. It makes sense from Jack Dorsey's pov, he was backing off. However even a saudi prince incorrectly believed he still owned twitter stock. It's super unusual for a S&P500 company to be so undefended.

Yet worse, something that I have never seen happen, there are a ton of S&P500 companies that are undefended. This isn't true in other country indexes. What made the US stock market so offensive? I checked all my US holdings and somehow each of them are healthy with the only exception being Tyson. The stock market is going to blow up?

DOW is down -7% YTD. S&P500 is down -11% YTD. With inflation at 8.5%, those are down alot.

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What do you mean "undefended?" A drop-in stock price?
If they did the poison pill they have to show strong results to prove that the company is more valuable than the offer and that they are better shepherds of the company. If Twitter announced weak results in the upcoming earnings call in these market conditions, their stock would fall hard. If his bid were to be rejected, Elon would sell his 9% stake which would be another blow. The current board can't survive this. They will be sued for not performing their fiduciary duty.
>> What caused the board to change the direction 180 and now closing the deal with Musk?

He secured financing for the deal.

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"Funding secured"

They also probably wanted to buy time for a counter-offer to show up at a higher price.

Like everything in finance, simply talking or threatening something is enough to make it real. The actual pill or action is rarely ever wanted or needed, it’s like the meta verse of bluffing.
Nothing is ever set in stone. He had the money and $43 billion is too enticing to pass up given that the stock has done nothing since the IPO.
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Critically, the price didn’t even shift that much given his takeover offer… which is just nuts. If someone offers to buy all the stock and it doesn’t shift up to at least close to the offering price, then something is wrong with either public perception of the company or the entire stock market.

It eventually drifted up, but you see other companies where a hostile takeover offer is cause to halt trading due to how fast the price spikes…. Which did not happen for Twitter. Twitter is not a “blue chip” stock which people expect stability from, perhaps even a gasp dividend… but nope, it’s a tech stock with none of that… yet is weirdly stable. That’s screams “complacency” to me and complacency is fertile ground for business, either by outside forces via hostile takeover and new management or a new disruption from a new market entrance. Given the network effect pressure it’s obvious that hostile takeover looks, at least from a “running the business” perspective, to be an obvious move.

Like many business decisions it just looks to me like “who will gamble on a bet this big”… and these days it’s individual billionaires who can afford to make bets like this. It’s a second golden age of capitalism, and I’m looking forward to the next Great Depression and the much needed cultural rest wth respect to assholes with too much money.

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> If someone offers to buy all the stock and it doesn’t shift up to at least close to the offering price, then something is wrong with either public perception of the company or the entire stock market.

No, it's a reflection of uncertainty over whether it will happen. Present value is not the offer price, since it's not guaranteed, and also accounts for the time for the deal to close - $54 in a year isn't worth $54 today. Regulatory risk isn't a big deal here, but is elsewhere, like ATVI trading at a significant discount to MSFT's offer.

TWTR is up significantly today since there's a binding deal now.

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> If someone offers to buy all the stock and it doesn’t shift up to at least close to the offering price, then something is wrong with either public perception of the company or the entire stock market

There were doubts about the bid. Musk had no financing. Now he has financing. The market has moved.

If he’d come back last week with a “tee hee jk” tweet about buying Twitter, everyone would have taken it in stride and then mocked those who bought the rumour to get run over by the news.

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They might not want to end up like Yahoo where there was an offer not accepted then the stock just went down and down from there. With the near certain recession coming the board would be on the hot seat hoping that the stock price would eventually go back up while Elon would be nagging them from the sidelines the entire time.
My understanding was that the poison pill would not kick in until someone owned 15% of the common shares[0]. Musk owns less than that, so the poison pill has not activated. However, Musk claims to have funding for an offer such that he did not need to buy the shares to reach 15%, instead he just said, I want to buy them all -- everything for $46.5B.

[0] https://www.cnbc.com/2022/04/15/twitter-board-adopts-poison-...

The poison pill provision and Elon's takeover are not mutually exclusive. It's in the board's best interest to gain maximum leverage over Elon. A poison pill puts the board in a better negotiating position in discussions with Elon allowing them to get better terms. Once terms are agreed they are free to repeal the poison pill.
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Elon submitted his final terms, there won't be negotiations, based on current public statements. As noted by others, the poison pill is not even in actual effect.
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Well, 1) He publicly claimed it was his final terms, but there is no reason a board should not at least try to use any leverage they have to try to interrogate that claim.

2) The valuation is not the only thing the board and Musk need to agree to. There are break up terms, ability to accept a higher offer if one materializes, liability in case of funding breakdowns, antitrust assurances, etc etc. So again, any leverage is useful.

What caused the board to change course was that Elon Musk filed with the SEC showcasing that he actually has $46 billion in funding secured, via an amended 13D filing [1].

This led Twitter's board to take his offer more seriously and many shareholders to ask the company not to let the opportunity for a deal slip away [2].

[1] https://www.sec.gov/Archives/edgar/data/1418091/000110465922...

[2] https://www.reuters.com/technology/exclusive-twitter-set-acc...

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I mean, you have to respect Elon's consistency, if not the substance - "funding secured" filing to the SEC on 04/20 for an offer at $54.20.
Matt Levine:

The poison pill left “Musk two main options. One is to negotiate with Twitter’s board and try to strike a friendly deal. This might be hard because the board probably wants more money than Musk is willing to pay, and also because there seem to be strategic and personal disagreements between Musk and the board that might make friendly negotiations difficult. ‘I am not playing the back-and-forth game,’ Musk said in his initial proposal; ‘I have moved straight to the end.’ That’s an annoying way to start negotiations.

His other option is to pressure the board into dropping the pill, and the classic way to do that is with a tender offer plus a proxy fight, as we discussed yesterday:

1. Musk can launch a tender offer to buy all of Twitter's stock for $54.20 in cash. (Or, of course, some higher number.) The tender offer is a public, binding document filed with the SEC, open to all shareholders, and it will be full of disclosures about his plans and, in particular, his financing. Shareholders will be able to read it and see if he has the money. If it looks like he does, then they will be able to decide if $54.20 is a good enough price. If they think it is, they will be able to tender into his offer, submitting their shares for purchase. He won’t be able to buy them, though, because of the poison pill; the tender offer will be contingent on getting rid of the pill. But if like 90% of shareholders tender into his offer, then that is an important public-relations victory; he can go to the board and say “your shareholders want this deal, let them take it.” And then the board might agree and get rid of the pill, and then the tender offer can close and he can buy the shares.

2. Meanwhile, he can also try to get shareholders to vote their shares in a way that gets rid of the pill. Classically, the way to do this is to run a proxy fight to kick out the existing directors and replace them with Musk’s chosen directors, who would get rid of the pill and let him close his deal. Musk can’t really do that here, because of Twitter’s corporate structure, but he can run some sort of informal symbolic proxy fight where he urges Twitter’s shareholders to vote against the directors who are up for election in May, or where he urges them to vote to declassify Twitter’s board so it’s easier to kick the directors out in the future. If 90% of shareholders vote with him for these things, that’s another sign to the board that the shareholders want his deal and should be allowed to take it.

These things do not work automatically; even if 90% of shareholders tendered into Musk’s offer and voted with him at the annual meeting, the board could still tell him to buzz off. It could easily do that if it found another bidder willing to pay a higher price, but it could also legally do that even without a higher bid; the law tends to defer to the board’s business judgment about whether or not to accept a merger offer. But most of the time directors care about what their shareholders think, and if all the shareholders want Musk’s $54.20 then it’s embarrassing for the board not to give it to them.” [1]

TL; DR The poison pill forces Musk to negotiate with the Board.

[1] https://www.bloomberg.com/opinion/articles/2022-04-20/elon-c...

David Sacks' take on this (thread):

„Things that must be true if Twitter’s board is ready to accept @elonmusk’s offer:

1) they did a soft market check and there were no other bidders.

2) @Jack is on board.

3) the pressure campaign worked.“ (cont.)

https://twitter.com/davidsacks/status/1518623080557342720?s=...

The poison pill is the name of a corporate strategy that prevents Elon from just buying 50% of the shares in the stock market and doing whatever he wants. It doesn't mean the same thing as the board saying they would rather swallow poison than deal with Musk.

Therefore, the board engaging with his bid to buy twitter, and the two of them only negotiating that way, was the goal. So it's not a 180.

The board was originally hesitant to engage because even Elon Musk could have a lot of trouble raising $44 billion in cash. They didn't want to agree to a deal that didn't go through (like trying to buy a house without cash or preapproval). He seems to have secured loans to actually pay for Twitter, so now they are seriously engaging.

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I think it was more than just they didn't believe Elon had trouble raising the cash. They liked being in control of Twitter and getting easy money as board members, and didn't realise that they can get personally liable for billions of dollars of loss for shareholders and go to court for years if they don't at least consider the offer and seriously evaluate whether the offer is worth taking for Twitter shareholders or not.
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> didn't realise that they can get personally liable for billions of dollars of loss for shareholders and go to court for years if they don't at least consider the offer

It is ludicrous to believe that, even if this were true BEFORE the Musk bid came in, they were not consulting with corporate counsel AFTER and in conjunction with issuing the poison pill.

As others have said, it is frequently used as a negotiating tactic and will usually pop up somewhere along the way in any unsolicited takeover situation. Just like the simple act of saying "no" is often a negotiating tactic and not a true statement of someone's unwavering intent.

What changed is that Elon Musk secured funding, making his offer much more credible and forcing the board to reconsider. The poison pill is still there for now but the board can remove it as easily as they added it.
I have a very cynical take on this. Assume that the board members are acting for the board members, no one else.

If Elon buys Twitter, what happens to the board? Well, he can fire them all. They may prefer to remain board members, with the money and power that comes from that. So the poison pill, while it may be offered in the name of "protecting" the existing shareholders, is really a way for the existing board to remain in power.

But that won't work if the offer is good enough that the existing shareholders want to take it. Then the poison pill becomes something the shareholders don't like, because it prevented them from doing what they want. Depending on how badly the existing shareholders wanted the offer, the board may not remain in power that way either.

Note well: There may be details in the way all this went down that don't fit in my cynical little narrative. But absent knowledge of those details, this is my suspicion of what's really driving the poison pill.

The idea of the ”poison pill” is to make it possible for board members to strenghten their ownership by issuing new shares to existing owners with a discount in the event that one single outside entity buys a significant portion of the shares.

It is artificial dilution, which in practice makes it possible for the board to cause heavy short-term losses to anyone attempting a hostile takeover: the market reaction to dilution is predictably a lowering of the going price of the stock unless the news comes with significant and credible hype about future profits.

The risk of this happening is what is thought to stave off the takeover.

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> make it possible for board members to strengthen their ownership by issuing new shares to existing owners

This poison pill does not strengthen Twitter board members' ownership because they don't own much Twitter stock.

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In essence.

The thing to keep in mind in all of this is none of this was ever about what's best for the users (current ownership vs. new ownership). It was always about whether the existing owners would get screwed in the takeover. User welfare barely enters into the story.

This is France and Germany hammering out the details of who owns Alsace–Lorraine; Twitter users themselves are just Alsace–Lorraine peasant-farmers.

The poison pill can be used by the board of directors in case of a "hostile" takeover of the company.

In the case of a non "hostile" takeover, meaning the board approves the takeover price there is no poison pill to be used.

Having zero knowledge of it, I would say that, since a poison pill is merely an option for existing shareholders to buy more shares, if they don't get enough takers for that option, then there's no news to print and no offer to compete with Elon's.
can someone explain why you'd spend $210/share rather than just buy on the open market at ~$50/share now? Are the $210 shares better in some way? Why would the $210 price double?
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so if they buy it at $210, but can sell it at $420? who buys it at $420? Twitter?
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They would've had the right to purchase $420 worth of stock for $210.

Functionally, a stock split for everyone but Musk. Hence, poison pill.


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