What’s A Shareholder Poison Pill And Why Twitter Just Adopted It To Fend Off Musk

Twitter's board of directors announced that it had unanimously adopted a shareholder rights plan, also referred to as a poison pill. This comes in the wake of Elon Musk's offer to buy the social media platform.

Elon Musk has been on a mission to shake things up at Twitter since it was announced he had bought 9.2% of the company earlier this month. The tech billionaire has been very critical of the platform, posting more than a few tweets, including a couple of polls, regarding Twitter's handling of what Musk considers free speech, as well as other things. Twitter's CEO went so far as issuing a warning to the company's employees of possible distractions, following Musk's rejection of being a board member. If Musk had accepted a position on the board, he would have been unable to acquire more than 14.9% of beneficial ownership of the company's outstanding common stock, keeping him from being able to purchase the company.

This week Musk offered to buy the social media platform for an astounding $41 billion USD, and even threatened to dump his stock if it is rejected. The offer was quickly met by a calculated move on the part of Twitter's board of directors in the form of a poison pill. This allows shareholders the ability to purchase stock in the company at a discounted rate if a person or entity acquires more than a 15% stake in the company without the board's approval.

The poison pill tactic has been around since the 1980s and was created by the legal firm Wachtell, Lipton, Rosen, and Katz. Its precarious name is in reference to a poison pill a spy would carry with them to avoid having to be questioned if they were ever captured by an enemy. The stratagem is a way for a company to avoid a hostile takeover or negotiate with shareholders.

In a live stream at the TED2022 conference in Vancouver earlier this week, Musk was asked about his intentions for Twitter. The billionaire stated that he wanted to make the social media platform's algorithms more publicly accessible and limit content moderation.

While Musk admits that he may not be able to buy Twitter, he said he does have "sufficient assets" to make the purchase if approved. And if his "best and final" offer is rejected, he said there is "a Plan B". He chose not to give any further details about the alternate plan when asked in the TED interview. The poison pill option will expire on April 14, 2023.