Dumb legal question:
Why can a poison pill dilute away a single shareholder’s stake, but doing some scheme where 51% of the shareholders dilute away the stake of the remaining 49% is illegal?
Why can a poison pill dilute away a single shareholder’s stake, but doing some scheme where 51% of the shareholders dilute away the stake of the remaining 49% is illegal?
- The poison pill is aimed at any investor trying to gather control, not a specific one. (At least legally)
- The poison pill is 100% avoidable. It triggers off some future event. This is similar to many other grandfather clauses like building codes, where things are changed going forward.
- 49% bought in thinking they were getting a share and a say in the company. Diluting them away is stealing and fraud (morally, not legally.) So, for instance, would be selling all the companies assets to Company 2 run by the same CEO and board (and who own 100% of Company 2) and letting Company 1 go bankrupt.
The situation is actually identical if Elon were to suddenly tomorrow purchase up to 49%. In that case, it would be the 51% diluting the 49%.
IANAL, but this is actually theft - Minority shareholders have rights if a company is liquidated, and the courts are smart enough to recognize "Reorganize all assets under a new company owned only by the majority shareholder" as being that liquidation. As far as I'm aware, States Attorney General are the ones to prosecute this crime, so file a complaint there.
As today's Money Stuff[1] opines - This kind of transaction can be really easily made legal, while still giving investors the middle finger. If the company is worth X, you takeover the board and carry out a merger that cashes out minority stakeholders for $1, you're liable for X. If the company is worth X, you takeover the board, and carry out a merger that cashes out minority shareholders for X * .8, you've got a good chance of getting away with it - The standards is "business judgment" vs "fiduciary duty". Companies have fiduciary duty to all shareholders. Sometimes that means that the board gets to dissolve the company for a lot less than it's worth.
[1] https://www.bloomberg.com/opinion/articles/2022-04-18/twitte...
Can you please elaborate on this? How can it be avoided?
It's there to say "no individual can legally own more than 15% of Twitter" as someone is starting to buy Twitter up. Not say "we're going to explicitly screw Elon Musk after he bought 25% of Twitter."
I'm guessing not: 1) if it were that easy to circumvent, it would be a pointless tactic that wouldn't be bothered with; and 2) I haven't read the actual language, but IIRC some articles that have described it as also including "family members and individuals acting in concert."
A good rule of thumb is: if it took you a short amount of time to think of a "cleaver trick" to defeat something "important," your trick most likely doesn't work. That's either because it fails for reasons you haven't through of or someone already thought of it and countered it.
See the definition of "Acquiring Person" in the rights agreement; it's the first definition in the document.
I mean, if he owned some Google stock, and Google decided to buy 1% of Twitter, that would probably be different, because Elon wouldn't own enough of Google to make them do anything or even be aware of their investments. But if Tesla did, or he bought index funds that included Twitter, then yes.
For that matter, if Elon promised Bezos, Gates and Brin they would make money on the deal (as opposed to doing it because it would be fun) it would also not be something they could do. Promise is doing a lot of work there.
Says who? What's the penalty? Some silly fine?
Elon loves to do exactly that, he does it now just to style on the SEC with how rich he is.
First, off, this conversation is about triggering the poison pill. So in this case, it would trigger.
That's what the conversation is about.
But since you want to focus on incentives:
That's an immediate dilution of his (and his compatriots) shares until their combined percentage was 15%. Additionally, they can be subject to a shareholder civil suit by anyone who sold the them shares for any increase in value between the time when they sold the shares and the information came to light. Additionally, they can be subject to a shareholder civil suit by any shareholders for any decrease in value of their shares after that information came to light until endtime fuzzy. Additionally, a civil injunction preventing them from taking the company private, preventing their scheme from allowing them to do so and rendering their actions pointless.
Those are just the people who stand to make billions from any of those actions. The SEC can also pursue it's own charges, but since they won't individually make billions, they are less likely to do so.
Remember Musk wasn't ever threatening a hostile takeover anyway. He knows it won't work. He was making an offer to the board to induce them to bless the sale. And the board responded with the poison pill, essentially as a way of saying "no". This is the way this kind of negotiation works.
And from the opposite perspective, arguments like "the board isn't performing its fiduciary duty by accepting Musk's offer" are likewise silly. The board is elected by the shareholders (the actual bureaucracy and process for this varies between corporations, I know nothing about Twitter). The level of oversight needed to ensure fiduciary fidelity is already there. No court is going to view a board trying to oppose a hostile takeover as a breach of fiduciary duty, that's ridiculous.
Also, can the shareholders then sue the company (successfully? :)) for decreasing the price? ("everything is securities fraud" after all.)
Nope. The poison pill allows everyone but the one who triggered the provision to buy shares at a discount. From Twitter's press release:
>In the event that the rights become exercisable due to the triggering ownership threshold being crossed, each right will entitle its holder (other than the person, entity or group triggering the Rights Plan, whose rights will become void and will not be exercisable) to purchase, at the then-current exercise price, additional shares of common stock having a then-current market value of twice the exercise price of the right.
AFAIK (IANAL), companies have few restrictions on stock dilution as long as the dilution is in the best interest of the shareholders. You can make a legally defensible argument that one actor is bad and should be diluted, but it's probably hard to make a legally defensible argument for selectively diluting shares of idle shareholders.
Plans like this are why Microsoft doesn't own Yahoo, and why Carl Icahn didn't buy Netflix.
maybe i think climate activist shareholders in energy companies are hostile / bad actors. Can i selectively dilute them out?
in this case yes. wonder why they dont
why is it okay if its one person, or a few people, but >n bad actors is fine?
Well, I guess if you’re a moral relativist that might be the case. I mean, why not burn the rest of the planet down for temporary profits? Why not enslave children in the Congo? It benefits the shareholders after all. How about murder and torture for hire? These decisions just seem so arbitrary. *shrug*