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Comment by throwawayacc2 | Hacker News Reader

Is this scenario something that can happen, or am I missing something?

An agent of Elons buys 15% of the stock triggering the poison pill.

The agent declares publicly he is not an agent, has no intention of selling the stock to Elon, has no business with him, etc - Essentially avoiding being lumped with Elon in the same group.

Does Elon now get to buy 85% of Twitter at a discount?

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IIRC that's not how the poison pill is set up. I believe it allows eligible shareholders to purchase $420 worth of new shares at a 50% discount per share of common stock they own (?), or allows the board to effectively double the number of outstanding shares for everyone but the entity (entities?) triggering the poison pill. No existing shares change hands.

This means that the poison pill would not allow Elon to purchase large quantities of Twitter at a discounted price through the poison pill itself.

Edit: Missed a provision of the poison pill allowing for doubling of existing shares without shareholders needing to purchase anything. Also try to clarify that the $420 of new stock may be per existing share owned, if I'm reading these documents correctly.

That's gotta tank the share price, though, right? Some shareholders will sell to avoid the dilution, and others will buy, but from the company rather than the market. So the market sees a bunch of sellers and few buyers.

I honestly don't know the answer to your question; this is well outside my knowledge base. Looking at the 8-K Twitter filed [0]. It looks like the stock that shareholders may purchase through the poison pill are 1/1000 of a different class of stock (Series A Participating Preferred Stock, as opposed to common stock), though the intent is that that small fraction should be about the same value as a share of common stock. I have no clue what the effects on the market may be for this option.

Also, I admittedly missed another provision of the poison pill - the board also has the ability to exchange an unexercised right for 1 share of common stock, effectively doubling outstanding shares for eligible shareholders without them needing to make an additional purchase. This may be more

[0]: https://www.sec.gov/ix?doc=/Archives/edgar/data/1418091/0001...

It's a strictly good deal for everyone except Musk. The price of the new shares are 50% of the price of the current shares and the dilution is 85% (not 100%) . So keeping everything else equal, if before the acquisition there were 100 shares at $10 each, the market cap would be $1,000. If someone hits 15% suddenly you can buy at $5.

The market cap stays the same (nothing about the business has changed) but suddenly there are 185 shares. So the new price per share on the open market is 1,000/185 or $5.41. So just buy the extra shares you can buy and you should be able to sell them on the open market for a profit. The only person who loses out is Musk, would now owns ~half as much of Twitter as he did before.

> Is this scenario something that can happen, or am I missing something?

> An agent of Elons buys 15% of the stock triggering the poison pill.... The agent declares publicly he is not an agent...

I'm guessing that would be some kind of fraud or at least a securities law violation.

Poison pill is a scheme enacted by Twitter, not SEC or any government agency.

It's not law therefore finding creative ways to go around that poison pill would not violate any laws.

>>> An agent of Elons buys 15% of the stock triggering the poison pill.... The agent declares publicly he is not an agent...

>> I'm guessing that would be some kind of fraud or at least a securities law violation.

> It's not law therefore finding creative ways to go around that poison pill would not violate any laws.

They would if those "creative ways" where themselves violations of the law. The issue isn't subverting the poison pill, it's the lying and secret coordination.

https://www.merriam-webster.com/dictionary/fraud

> Definition of fraud

> 1a : deceit, trickery specifically : intentional perversion of truth in order to induce another to part with something of value or to surrender a legal right was accused of credit card fraud

> 1b : an act of deceiving or misrepresenting : trick automobile insurance frauds

As we all know, Webster dictionary is all you need to know to pass a bar exam.

In your hypothetical example, the agent doesn't have to say anything.

If Larry Ellison buys 15% of Twitter as a favor to his buddy Musk, he is under no obligation to publicly state anything. All he has to do is to disclose any stake bigger than 5%, as per SEC rules.

Twitter board has no power to question Ellison on his motivation.

They can either trigger the poison pill or not.

If they try to include Musk as part of the poison pill, they'll be sued by Musk and the burden of proof will be on Twitter board to demonstrate that Ellison is in cahoots with Musk.

And when you're in front of a judge and the jury, it's a bit more complicated than "because I said so".

> As we all know, Webster dictionary is all you need to know to pass a bar exam.

Then cite an opinion that found that a deception like the one originally outlined was legal, preferable one at an appellate level.

Because "have an agent do something for you and lie about it to deceive others" does not seem likely to be a sound basis for a legal scheme.

> And when you're in front of a judge and the jury, it's a bit more complicated than "because I said so".

"Can't be proven is court" is quite different than "being legal."

Right, but the method of averting the poison pill described above would likely violate securities laws around coordinated behavior between market participants.

If the agent doesn’t sell that stock, can it be proven that he is actually an agent?

In principle, sure. Why not? Sue him, subpoena the emails/etc and see if you can find some incriminating statements. There is no guarantee of success, but it could work.

I would think (hope?) that if that were possible, the SEC et al would have sufficient awareness to do all due diligence possible to determine the provenance of the agent in question.

Wait, what am I thinking. I don't need to worry about the SEC... the reputational boost associated with whoever identifies shady behavior first will be huge. Everyone will be bounty-hunting this to death backwards inside out and upside down. It's Twitter and it's umpty billion dollars.

SEC has no mandate (nor should it be interested in) enforcing rules created by Twitter board.

SEC enforces laws created by congress.

"Poison pill" is not a law. It's a rule created by Twitter board.

It merely says "if this happens, we'll do that".

If anything, SEC should be looking into Twitter's board authority to sell stock at half price, which clearly harms shareholders.

And one of the things SEC is supposed to do is to protect shareholders from harm, even if the harm comes from inside the house.

I’m guessing the shareholder rights plan adopted by the board includes a “wolf pack” provision to (mostly) address this scenario and also publicly declaring they’re not colluding with Musk when they are, in fact, secretly colluding would absolutely be fraud.

But an interesting hypothetical: some wealthy benevolent complete stranger who has no ties to Musk whatsoever suddenly purchases 15% in order to trigger the poison pill and allow Musk to buy a huge stake at a discount. I don’t think that would be fraud. (Though I’m really not sure? And there are probably plenty of lawyers who could make a solid argument it is...) And I’m not sure why anyone would ever waste so much money on a random act of kindness(?) for Elon Musk but billionaires have definitely done dumber things with their money just for shits & giggles.

Let’s say this happens and Musk buys a lot of the new shares so he now owns more than 15 % too. Does the pill get triggered again?

No there’s usually language that it’s triggered once and that there are no other shareholder rights plans currently in effect. And since the plan states the price at which shareholders are entitled to purchase shares whether or not it was triggered “again” would kind of be a moot point because the price wouldn’t change and there are only so many authorized shares.

And also it’s a silly hypothetical (even for a hypothetical) because I didn’t think it through at all: I’m pretty sure there is typically a cap on how many shares any one shareholder can buy when the pill is triggered. So it wouldn’t really be any help to Musk except that the “threat” of the poison pill would be removed and maybe some investors would be happy to cash in by quickly buying the poison pill shares and then selling to Musk.

Also, if it were triggered I think it would be a bit of a logistical nightmare and things would probably be in flux for a few days before anyone could say who owned how many shares with any certainty.

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