Comment by cwp | Hacker News Reader

Comment by cwp | Hacker News Reader

I'm kinda curious about what would happen if Musk triggered the poison pill. Yeah, his existing stock would be diluted. But... how much? What would it do to the share price?

The poison pill is essentially a gun to the head of all the other shareholders: you're either with us or against us. Help us fight this hostile takeover or get diluted along with Musk. How will people react to that?

Some will jump at the chance to buy discounted shares. Others will be unable or unwilling to buy more, and sell to avoid dilution. But they'll have to sell to people who aren't currently shareholders, because shareholders have a better option. That'll drive the price down, and also reduce the discounted price for shareholders. Will investors that buy in after the poison pill is triggered also get the discounted price? Will existing shareholders wait to buy discounted shares until after the exodus lowers their price?

There are so many feedback loops and non-obvious motivations here. It's possible that Musk could trigger the pill, stand back and watch the stock crater, then buy it cheap. And if the stock does crater, will he then have to compete with other takeover bids?

His stake will be cut approximately in half. We probably don't have to wonder what happens if the rights agreement is triggered; it won't be (it would be the first time in business history one ever had). Doing so would mostly just be a way of setting billions of dollars literally on fire, out of pique.

Yeah, it probably won't be triggered; even Musk would wince at that kind of loss. But that's exactly why we have to wonder, or I do at any rate.

The poison pill seems suspiciously like a free lunch for the board if you only look at the 1st-order effect: Musk is diluted, and loses billions. That right there is enough to stop a rational investor. But it's partially a bluff. The board doesn't hold much stock (except Jack) and the assumption that all the other shareholders will pony up cash to double their exposure is probably wrong. Many will, perhaps most will. But the share price will take a hit, and Musk is free to acquire as much stock as he wants. Maybe he can't get every last share, but he might be able to take control.

Again, I agree with you that it's unlikely to happen, but if there were ever a time to question the conventional wisdom, this is it.

The point of a shareholder rights plan is to force acquisitions to go through an orderly process and end at a maximal valuation for the company. Without them, hostile acquirers can make coercive low-ball bids that punish shareholders who don't tag along, among other bad things. The board has ample reason to believe that the offered price isn't the best one:

1. It's the first offer.

2. Twitter has traded higher very recently --- as have other tech companies, creating a plausible argument that the current share price is a sectoral thing that will correct itself.

3. Little has been done to optimize the short-term share price.

4. It's a valuation Musk assigned while saying he was uninterested in making money from the deal, suggesting that it's the lowest plausible valuation for the company, not the highest.

Musk has a simple next step: he can complete a tender offer and get commitments from a majority of the shareholders. If he can't even do that, the board will have been proven correct. If he can, still more things can happen that could prove the board correct (not least of which would be a higher offer). If nothing happens to prove the board correct, then ultimately Musk will acquire the company, if that's truly his plan.

Not having a "poison pill" seems like malpractice under the circumstances.

I love motivated reasoning like this.

Musk's offer is well above current stock price, within the range of similar take over bids. Certainly nothing that qualifies it as "coercive low-ball bid".

> first offer

Yeah, because no one else is interested in acquiring money-losing business. Board's remedy should be to secure better offer, not a poison pill

> stock price was higher

This is an argument in favor of accepting bid. Investors are telling us that Twitter is a sinking ship. Musk comes in willing to pay well above the current price.

The alternative might just as well be to watch the ship sink lower and lower.

"Poison pill" that dilutes shareholders will not bring stock price higher.

> Little has been done to optimize the short-term share price

Love the suddenly passive voice, trying to not name Twitter board and management responsible for Twitter's bad performance.

At the same implying that they can wave a magic wand and push stock price higher. Makes me wonder: why didn't they?

Again, the remedy for the board and management would be to present a credible plan to improve Twitter business and therefore stock price.

Instead they created a poison pill which, if triggered, will tank the stock price and dilute many existing shareholders (not everyone will decide to give Twitter money for the cheaper stock).

Almost certainly it'll tank the stock price. But more importantly, reduce market cap.

> not the best possible valuation by Musk

Or it is actually the final offer and Musk is not bluffing.

Again, it doesn't matter. Musk doesn't have to come up with better offer.

That's not how any of that works. It doesn't work that way if you're negotiating a salary, a price of a house or a price of a business.

If board can secure a better offer from someone else then Musk will have to up his offer or not buy Twitter.

If not, then this is the best offer Twitter will ever get and it's significantly higher than the current value of the business.

Again, poison pill is not a remedy here.

I don't know who you're arguing with. I'm describing the rationale for poison pill arrangements (I'm more or less just parroting Matt Levine).

If the board is wrong, and Twitter is worth less than Musk's offer, Musk will eventually get the company --- either because the board will relent after Musk's tender is successful, or because, next year, Musk will succeed in replacing the board.

The rest of your points basically just add words to things I said. It's not the case that I know for a fact Twitter is worth more than Musk's offer. It might be worth less. There is now a process for the market to judge who's right. Nor was Musk's original offer "coercive"; it couldn't have been, because it wasn't even an offer. The coercive offer is an eventuality the pill protects against, not something the pill reacts to. One outline of a coercive offer is "I will pay $54/share until I get enough shares to control the outcome, at which point I will use my control of the company to have it accept $10/share for everyone else". That's the kind of thing a shareholder rights plan prevents.

So, as I said before: if you're right, Musk will end up owning Twitter. If he can't even manage the tender, the board will instead have been proven right.

Of course, if he ends up with the company, the parade of horribles associated in message board consciousness with poison pills will have been debunked (the pill will not have prevented him from acquiring the company). And if he gets the company, but pays more per share for it, the board will, again, have been proven right.

Wait, can't we trigger the poison pill buy buying up a lot of Vanguard?

Reply on news.ycombinator.com