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Explained: What Is Twitter’s “Poison Pill”?

The approach, known in the finance industry as a “poison pill,” simply allows existing shareholders to buy newly issued shares in a firm at a discount to the trading price, effectively making any hostile takeover effort exceedingly expensive and impractical.

Elon Musk’s aggressive takeover proposal has been thwarted by Twitter, which has adopted a “limited-duration shareholder rights plan,” sometimes known as a “poison pill,” that would make taking control of the social media network considerably more expensive and difficult for the Tesla CEO. We take a look at what Twitter’s plan is to stop Musk’s takeover and what possibilities are remaining for the Tesla CEO to complete his takeover.

The approach, known in the finance industry as a “poison pill,” simply allows existing shareholders to buy newly issued shares in a firm at a discount to the trading price, effectively making any hostile takeover effort exceedingly expensive and impractical.

By allowing existing owners to buy additional shares at a discount, the move will prevent anyone from owning more than a 15% interest in Twitter. The Twitter board of directors presented its defence strategy to the US Securities and Exchange Commission, claiming that it was necessary in light of Musk’s “unsolicited, non-binding proposal to purchase Twitter.”

Indeed, Musk, who proposed $43 billion for a 9.2% stake in Twitter in exchange for $54.20 per share in cash, appears to have lost his position as the platform’s top stakeholder. According to the most current publicly accessible filings with the US Securities and Exchange Commission, the US registered investment advisor Vanguard Group now owns 82.4 million shares of Twitter, or 10.3 percent of the firm. The asset manager boosted its interest in the company during the first quarter, according to the filing.

Al Waleed bin Talal Al Saud, a Saudi king, is another high-profile Twitter investor who believes Elon Musk’s offer to buy the site is too low. Musk’s offer was rejected by Al Saud in a tweet on April 15. “Given Twitter’s development possibilities, I don’t feel Elon Musk’s proposed offer ($54.20) comes close to the real worth of the company,” the Saudi prince tweeted. “As one of Twitter’s largest and longest-serving shareholders, @Kingdom KHC and I reject this offer.”

When a firm attempts to purchase another against the wishes of that unit’s management, it is referred to as a hostile takeover bid. In the case of Twitter, management is represented by the platform’s executive board, which has described Musk’s bid as “aggressive.”