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Comment by freefal | Hacker News Reader

Update: This is wrong. Ignore it. The poison pill is not diluting any individual shareholder disproportionately. What it is doing is issuing the right to buy shares at a steep discount. For example, if shares of Company XYZ are currently trading at $50/share, the board would issue all the company's shareholders the right to buy stock at $25/share. Economically, everyone should exercise their rights since this is a good deal. The issue for the hostile bidder is that it can become quite expensive to actually fund the exercise price to maintain their ownership interest. The company now also has more cash and so purchasing all the remaining stock that the hostile bidder does not own will become more expensive/difficult.

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The less technical answer is just that "the board runs the company and they can decide how to allocate new shares". This kind of trick is just one of many reasons why hostile takeovers virtually never work. And that's a good thing, precisely because it prevent disruptive attacks on companies competing in the market.

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.

I think poison pills explicitly exclude the hostile shareholder from this right. Otherwise they wouldn’t work.

Hm, but in this concrete example Elon is also a shareholder, so he can buy for 25/share, right? And as more shares are being created the spot price on the market should drop, no?

Also, can the shareholders then sue the company (successfully? :)) for decreasing the price? ("everything is securities fraud" after all.)

Yes, but presumably enough of the other members with smaller purchasing power will still be each marginally incentivized to buy enough more such that it will dwarf Musk's motivation to outbuy any of them individually. At least that's how I understand it.

>Hm, but in this concrete example Elon is also a shareholder, so he can buy for 25/share, right?

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.

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