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Current Affairs

Poison pill strategy

Date: 19 April 2022 Tags: Miscellaneous

Issue

Twitter has adopted a tried and tested strategy known as ‘poison pill’ defence strategy to overcome hostile takeover bid by Elon Musk.

 

Background

The strategy would make it more expensive and complicated for Elon Musk to take control of the social media network.

 

Details

Poison pill pertains to limited-duration shareholder rights plan that would allow existing shareholders to purchase freshly issued shares in a company at a discount to the trading price.

This would make any possible buyout plan extremely costly and prohibitive for the party planning a hostile takeover.

It would prevent anyone from owning 15 per cent stake in Twitter by allowing existing shareholders to buy additional shares at a discount.

 

Effects of strategy

The strategy allowed investment advisor Vanguard Group to own 10.3 per cent of the company, displacing Musk as the largest shareholder.

 

Musk’s plan

Elon Musk, the world’s richest person, wants to buy Twitter outright and later take it private to restore its commitment to free speech.

Musk wants to buy Twitter as he realized that an inclusive and trusted platform is extremely necessary for the future of the civilization.

 

Response to poison pill

Elon Musk could start a proxy fight with the help of thousands of retail investors to oust the current Board of Directors.

Musk has already warned the Twitter management to not act contrary to shareholders’ interest as it would violate their professional commitments.

He also acknowledged that he has a Plan B ready in case the Twitter Board of Directors rejects his offer of buying.

 

Hostile takeover

It is a forceful attempt to acquire a company against the wishes of that unit’s management. It is usually done by buying shares from open market.