Ask HN: What happened to Twitter poison pill? | Hacker News Reader

Ask HN: What happened to Twitter poison pill?

333 pointsrukshn292 comments

Last week it was said that Twitter's directors will take a poison pill instead of selling Twitter to Elon Musk.

What caused the board to change the direction 180 and now closing the deal with Musk?

Can anyone shed a light on that, I didn't see anyone talking about this.

During a hostile takeover, someone buys 51% of the shares. They then elect a board of people who will approve whatever they want.

Then they can do things like 'merge' the company with some other company they own at a board-approved value-per-share. That value will be much lower than what they paid per share when buying it on the open market, but not so low that the government gets involved. Eg: Musk buys the shares at $50/share, and then 'merges' the company at $25/share, effectively forcing 49% of the shares to be sold at half price. Those shareholders get screwed because they didn't sell their shares during the initial takeover.

Edit: Or, just run the company however they want and share the profits with the other 49%, but ignore their votes, etc.

The Poison Pill says "If a hostile takeover starts, we'll create and sell new shares at a reduced price to existing shareholders- other than the attacker- to prevent the 51% scenario". This is done not to prevent any takeover, but in the interest of the 49% of holdouts who would have been screwed over. It's an effective block against the takeover.

The board represents ALL the shareholders, after all. They don't want to see anyone get screwed.

But now Musk has made a deal that the board has approved. All shareholders get a specific price that is approved. The board wants this to happen, so there's no poison pill.

1. How does that look for a random TWTR holder far away from SV? One day his broker just informs him that there are no longer securities on his account, but that account has received some cash?

2. Why is it even allowed (by the government) to decide the share price at the board meeting? These shares don't belong to them, somebody has purchased them already. And these people have decided what the shares are worth, that's kinda the definition of "market price". The board didn't decide that, market did. If they want to get these shares back it sounds only fair that they should have to pay what the new owners consider the fair price, whatever it is.

1: yes. you get cash for your shares. 2: the board is representative of the share holders, like your US Congress person. they have a fiduciary responsibility to give the share holders value. the only reasonable way they could blow up this deal is if twitter had an incredible roadmap with a very good path to matching the value or exceeding the value of Elon's offer. no such roadmap exists, apparently.

The board could very easily have blown up the deal, which is proceeding only because they've consented to it. The game plan is simple: they do nothing, Musk executes a tender offer (which has a good chance of failing, so there's an out), the board says "nice job, but we're holding out for more money, check in with us next year", Musk launches a proxy fight, but it goes nowhere because Twitter has a staggered board and so there's no chance of a change of control within the next 12 months, 11 months go by, and we look at the price of the stock; if it's up, Twitter's board has de facto won the argument; if it's down, Musk's bid is no longer economically rational. Repeat.

The most boring conclusion here (boringness on message boards usually being a strong proxy for accuracy) is that the board's initial reaction to Musk's offer was reflexive, the same way you'd push back on someone offering to buy your house based on a fixed premium from like Zillow, and that over the ensuing weeks they've managed to do the homework to evaluate the deal, and they've decided Musk is overpaying, so they're taking him up on it.

From everything I've read --- I'm not an expert and someone like 'JumpCrisscross could jump in and correct me --- is that the deal blowing up was essentially the default state, once the shareholder rights plan was put in place.

There’s an alternative explanation to why the board did what they did: Musk has played fast and loose with “I have the funding for this deal” and “I am correctly disclosing my share purchases” in the past. The poison pill was a way to get him to slow down and talk to the board and get his lawyers to sit down with their lawyers and make sure this wasn’t going to be another “I’m taking Tesla private” moment.

(not saying you’re wrong, both or neither of these may be true)

Sure, I'm not unbiased here and am framing this in the way least favorable to Musk --- that if a board is going to accept a first (=chuckle= no, "final") offer from a bidder, it's because the price is more than the board thinks the company is worth. But it's also true that they may have done that calculation quickly, and that really they were just making sure this wasn't an elaborate joke.

Part of my analysis is based on the rumor that Twitter completed a valuation over the weekend, and it wasn't super favorable. But I've got no reliable reporting that establishes that.

Either way, my real point is just that the board could easily have stopped this deal if they wanted to; in fact, they didn't even have to do anything to do stop it.

Musk probably had to overpay, otherwise they wouldn't want to sell it.

Of course. It is standard to pay a premium over the share price in this situation.

We're not talking about the share price, we're talking about the company's projected valuation.

The share price reflects the market's valuation of the company, and shareholders are not going to want to sell for a price less than the current share price plus a premium.

Maybe if the board had information that hadn't been published yet showing that the company's financials had completely tanked since the last earnings report it would be different, but other than that, Twitter's financials are obviously public, and even if the board used something like the DCF method and obtained a number much lower than the market cap, that has absolutely no bearing on whether they would accept a certain price from Musk.

So, no, it's really the share price that matters in this situation.

Also, even if you're purely talking about valuations, there are other common valuation methods like the comparable method that look at what similar companies have received based on their share price, so the idea that the board would decide to sell purely based on cashflow projections is not correct.

No, that's not true. The board's job is to determine how far off the share price is from what they believe the company is worth based on their own internal projections. The board is certainly not expected to take the spot price of Twitter common stock as the ground truth of the company's valuation.

I think that's what GP said/meant, when s/he wrote:

> Maybe if the board had information that hadn't been published yet [...]

Of course the board has information that hasn't been published yet. Every board does.

It sounds, then, like you're agreeing with the post you replied to, which seems to already include the caveat you brought up

Technically they could, but once fiduciary duty is considered, and also given recent drops and maybe less than spectacular q1 results which as I understand are to come soon, they probably decided they shouldn't, as this may expose them to torches and pitchforks from shareholders that are less ideologically driven than they are.

Yes, Musk's bid may be overpaying, but in that case board's duty is to grab the money - and that's probably why he is overpaying.

Sure, we're saying the same thing in that regard.

2. That doesn't answer my question. Actually, I'm not even sure how it attempted to.

I specifically mentioned the "market price". I don't really know how these US congress persons work, and you may as well imply that the idea that they "represent" you is as much bullshit, as Musk-assigned board member represent real shareholders (and I have no problem with this implication), but there surely must be difference (and it isn't even the fact that you supposedly voted for them): unlike congress people, who can decide whatever they decide in the USA congress, the board cannot decide the market price. At least, usually. Every shareholder wants market price to be higher, and the board members are supposed to try to achieve that, but they cannot appoint the price, they simply have no such power. By definition, it's the market who decides that. Otherwise, it isn't clear, what the "not so low that the government gets involved" is even supposed to be. I fully admit that I don't understand how this works, so this may sound silly, but it would seem fair to me that since the moment company became public, nobody ever can undo that, because microscopic pieces of that company legally belong to some random people now, and they can ask whatever price they want for their share. If anybody makes them sell at any price that's less than what they want — it's a robbery.

Now, I can kind of imagine the way this could be worked around. E.g., there must be some way to liquidate the company, and hence there must be way to execute the merger regardless of what shareholder minority thinks of that. Each company gets supposedly "fair" valuation before the merge and old shareholders get specific amount of "new" shares in exchange to their old shares, which is kinda like getting the cash, so here we go. I mean, I still cannot explain myself, how this can be considered fair and legal, but I suppose there is an explanation. But even this way, the natural way to do that seems to use today's market price. So even if 51% belongs to 1 person and nobody else can decide anything (so, he basically IS the board already), how can this person offer shareholders anything else than the market price for what belongs to them? This doesn't make any sense to me. It sounds like a robbery, plain and simple.

There are stipulations that come with buying shares. In fact when you buy shares, they’re never even actually in your name. They’re like 3 steps removed from you via various holding companies that are basically a bunch of various crap.

One of the stipulations of being a shareholder is that you may be forced to sell your shares under certain circumstances. Nothing illegal about it, even if you don’t like it.

It's interesting to read how a takeover works from a US public markets perspective because the situation is completely different in the UK.

Takeovers of UK-listed companies are subject to the Takeover Code [0] which is administered by an independent body called the Takeover Panel. The Takeover Code is actually a surprisingly readable document which sets out all the rules that the bidder, the target and the shareholders must follow. A "mandatory" takeover in the UK is triggered when a shareholder goes over a 30% shareholding - they are then obliged to make an offer for the stock that they do not own at the highest price they have paid in the previous 12 months.

Shareholders cannot be forced to sell until the bidder has received acceptances of more than 90% of the shares to which the offer relates. The board of the target will offer shareholders an opinion on the takeover price - they can either recommend or reject the offer. Typically, when boards recommend an offer then shareholders will accept but there is certainly no obligation to.

Interestingly, the Takeover Panel used to have no legal enforcement powers (I'm not sure exactly what their status is these days). To ensure compliance with the rules there was a punishment called 'cold-shouldering' - basically if you breached the Takeover Code in an egregious way, the Takeover Panel could instruct market participants to stop dealing with the guilty party. This has only been used in very rare circumstances [1].

[0] https://www.thetakeoverpanel.org.uk/wp-content/uploads/2022/...

[1] https://www.thetakeoverpanel.org.uk/the-code/compliance/cold...

Depends on where you buy. Most folks buy from a broker and are holding the “street name”, which is an abstraction of the actual stock; however, it is possible to directly register shares with the DTC (depository trust company) and actually own them.

>If anybody makes them sell at any price that's less than what they want — it's a robbery.

No, this incorrect. Pending a shareholder vote, the board of a company can force you to accept an amount they determine to revoke the validity of your shares. If the value per share (which they decide) of a specific class of shares is not so low as to illicit concern from regulators then it's all above board.

It seems you don't understand the question. I understand that the board can decide value per share. Basically everyone in this thread said this at least once, which is unnecessary, since that's basically what was stated in the root post, and that's why I asked the question in the first place! The question is how this is supposed to be fair. Because, once again, if you make me to sell my property for anything less than I want to sell it for — yes, it totally does sound like a robbery. Again, kinda by definition (I paid money to own some entity; if you want to become the owner of what I own, you have to pay what I ask for it — this is basically how all trading works).

So, once more, my question is: what is the underlying legal idea, that makes this supposedly "fair deal"?

It seems you don’t understand the notion of conditional share ownership. These aren’t bearer bonds or cryptocurrency. Within the corporate structure that allowed you to be issued/sold these shares at the outset are stipulations that the board can liquidate your shares, under certain conditions. Evidently, those conditions have been met. An arbitrary definition of ‘fair’ doesn’t play into it.

I think the question is more to do with how we can have an economic system largely based on shares that can be rug-pulled from under a shareholder at any moment. How come governments don't legislate against it? How come anyone trusts shares enough to buy them?

At a guess I'd say the answers to the two questions are "they do legislate against some behaviours, but blocking hostile takeovers is worse than allowing them" and "the risk of that happening is built into the market price," but I don't actually know.

I think the problem is that a large number of people got used to various trading accounts like ETrade, Robin Hood, etc. and that seeing "N shares of ABC" on a web site means that they actually own the shares. But this is just an abstraction like someone said in another comment. I would encourage you to go and read any brokerage's terms of service that you agreed to when you signed up. Or if you actually managed to get a paper stock, read the fine print. I promise you it will be very interesting :-)

I personally am aware that shares are a very limited form of ownership and gave my personal answers for why I accept that, but the meta-level question that was raised by krick earlier still stands, which is how everyone else in the world sees it and goes "yep, that's totally fair, we don't need to fix this."

speaking for myself, "fair" means they obey the contract, which gives them that ability

there is also the option of not letting people buy or sell stocks at all, which would resolve the same issues the mandatory sell provisions resolve

A healthy control premium over the market price for a publicly traded stock is a bit far and away from being "rugpulled"

Yes, and I think krick was asking what happens when something closer to a rugpull happens.

The SEC says no, or there is a shareholder lawsuit.

Publicly traded securities aren't the Wild West, and the real world has built up comparatively effective dispute resolution tooling like "courts," elected and appointed "judges," "regulators," and "prosecutors."

Not to mention "case law" and "precedence"

>Within the corporate structure that allowed you to be issued/sold these shares at the outset are stipulations that the board can liquidate your shares, under certain conditions.

Those conditions and corporate structures should be regulated way more thoroughly, preventing legal fuckery such as this. Or share classes.

The board cannot, by itself, decide the value per share. The board can present its opinion that the deal is fair by approving it, and suggest that all shareholders take this course of action by subjecting the deal for shareholder vote. If the majority of shareholders agree by voting in favor, then the company will be sold, even if a significant minority disagrees, because the company is structured to act according to the will of the majority. That's what makes this a "fair deal".

It would be good to get confirmation on this as it contradicts statements upthread saying the board, in USA [though I'd expect it might be specific to a stock market], decided on behalf of the shareholders (to whom they have a duty).

Someone noted the UK position required shareholder assent, which sounds like what you're saying here.

If shareholders vote that sounds 'fair'. If the board decided and shareholders are obliged to go with it as that's how shares are [in some particular jurisdiction/market] then it being fair seems of no concern to that system (as a sibling content intimated).

If you look at (at least one) of the recent articles (try AP or reuters), the board mentioned that the deal is still subject to both shareholder and regulatory approval. That's where it is. Shareholders still have to vote, and the concept of "fairness" will be roughly equal to that of democratic elections. Sometimes the majority votes for a thing and the minority has to accept it in order to make progress.

The board basically voted to stop standing in the way of the deal and submit it to shareholders themselves since they confirmed that A) it seems like an ok deal and B) it's likely to not waste everyone's time.

It's a bit messy. Legally the board has to act in the best interest of all shareholders. In actual trials the judges tend to defer to the board's business judgment since they are intimately involved with the company's strategy and operations, unless the opposing shareholders can provide evidence of equal experience or understanding of business. In practice however, sitting on a company's board is a job, and the directors mostly do what the shareholders want to protect their career and professional image.

In this case, Reuters reported here https://www.reuters.com/technology/exclusive-twitter-set-acc... that the deal is subject to shareholders vote before it can be closed.

> what is the underlying legal idea, that makes this supposedly "fair deal"?

If you don't trust the board to do right by you, you are free to (and should) sell your shares.

> if you make me to sell my property ...

zwily explained above ( https://news.ycombinator.com/item?id=31162992 ) shares are not your property.

> US equities, corporate and municipal bonds can be issued in certificated form, though this practice has been largely replaced due to the costs and inefficiencies of keeping them. Rather holdings are kept as "immobilized" or "street name", with the beneficial owners keeping them in accounts at broker-dealers and banks, just as they do for currencies. DTCC uses a nominee firm, Cede & Co., in whose name a share certificate is held in the DTCC vaults. Each day DTCC reconciles with the relevant transfer agent the number of shares held in its accounts for its member banks and broker-dealers. In turn, other banks and broker-dealers hold accounts with DTCC member firms, creating a chain of ownership down to the beneficial owner.

https://en.wikipedia.org/wiki/Securities_market_participants...

The board cannot unilaterally decide the share price. The deal will only be finalized once, among other things, it's approved by shareholder vote. But that is largely a formality. The largest shareholders are going to be institutional and not ideological, and $54 is way higher than most (all?) estimations for Twitter's value. Incidentally the same reason that refusing this deal would have exposed the board to personal legal risk.

As for why it's fair - a share doesn't represent ownership of a company, it represents a voting share in an abstract entity. Normally these are pretty close to the same thing, but there are important distinctions - such as here. When Twitter goes private the abstract entity it used to be will cease to exist, along with all voting rights in such.

The shareholders appointed the board to act as their fiduciaries in respect to the governance of the company. They voted for them. Among the powers they granted them is the power to accept an offer to buy the company.

If you bought shares after the last annual shareholders' meeting, well... presumably you were happy enough with the current board members and the company bylaws to buy the shares in the first place. You did... do some diligence before you invested, right?

Imagine the reverse situation, where the board could not decide on the price everyone got per share but did let someone get a controlling stake. I could by 51% of a company for $10 per share and then use my controlling interest to pay myself a consulting fee that was the profits of the company. I could offer the rest of the shareholders $1 for their shares, knowing that I would never let them make any money off of them. When someone takes control you have to try and make sure that at the moment they take control every everyone is paid equally. It doesn't always work like that, but I hope this helps you understand the fairness of setting a price for the remaining shares when someone is in a position to take control of a company.

Buyers are often only interested in buying 100% of a company. If an all or none bid comes in, either the people who want to accept or the people who want to reject are going to be unhappy. When setting up a company you have to plan how to deal with this possibility in advance, without knowing the specifics of any offer. Most large public companies come to the conclusion that letting the majority decide is the fairest thing to do, and most shareholders know that's how it works when they are buying the shares.

Other people have tried to explain this in many ways, but I'll take a stab in a different direction.

When you purchase stock in a company, you agree to certain governance principles, rights and responsibilities. Those principles outline an individual shareholder's rights in the event of an acquisition.

Basically, you agree to those terms when you purchase the stock. If you don't like your rights, don't purchase the stock. If you own a stock and don't believe the governance structure has your best interests in mind, sell it.

> what is the underlying legal idea, that makes this supposedly "fair deal"?

Every public company has articles of association which define the rules determining things like this. By purchasing a share you agree to those articles of association. You can’t just say “hold up I didn’t agree to this”, because you did.

Tangential, but there was an interesting Lex Fridman podcast recently featuring Michael Saylor, on the advantages of bitcoin as a 'property' as opposed to a 'security' (such as shares).

I mention it here as I hadn't thought about this beforehand, and many examples were given in that podcast of the advantages of property (bitcoin, real estate, barrel of oil) compared to securities (shares). Less potential for conflict of interest, stronger concept of ownership and stability over time.

Thanks for asking, I had the same question and I thought it was some NYSE agreement I agreed to with Robinhood when I signed up.

It is not fair nor it is supposed to be. Stocks make as much sense as NFTs.

It looks like they made a good attempt to answer your question. They are saying that the board's fiduciary duty is what lets them be trusted by the government to sell the company. They are not saying the board decides what a decentralized market would pay each individual shareholder (the stock market does that), but that the board has an obligation to evaluate an offer against the likely future value of the company if it proceeds on its current path. Reading between the lines, the market is essentially a) the current stock price, b) the offer price, c) what the board/SEC/shareholder lawsuit judge thinks is a reasonable difference between A and B.

> It sounds like a robbery, plain and simple.

A lot of work and planning goes into the sale of a company, and there are a _lot_ of safeguards to ensure such a sale isn't done in a way intended to "rob" a large amount of shareholders[0]. You don't really "own" a stock in the regular sense of ownership simply because of the absolute mass of laws and regulations that surround both what you can do with your shares and how much they're worth.

0: https://www.lw.com/thoughtLeadership/the-latham-and-watkins-...

The board of directors has a fiduciary duty to represent the shareholders. That also includes the minority shareholders in your scenario. I think the comment above was just making a general statement of what could happen and in that hypothetical scenario, or even if you make it more extreme, say Elon and co acquire 51% of twitter for $50, and install new board with their majority and then the board decides to go private, selling the full company to Elon for $0.01 per share. Could they do this? Technically, I would say yes. But in reality, they would be sued by the 49% of shareholders and the SEC would probably launch an investigation (which is what OP meant by govt would get involved). On the open market, the board doesn't really have much control over the price, but when it comes to complete buy-outs or mergers, they can set a price and as long as most of the shareholders are happy, it is what it is. I'm sure with this Twitter buyout at $54.20, some people are holding shares that they bought at $60+ last year, and they'll be forced to liquidate those and get the payout, so they won't be too happy, but considering the current price of twitter and it's road map it may be a good price.

Wrt 2:

It's a bit complicated. The "market price" isn't really the target here, if you are talking about the price of the stock on stock exchanges. It's accepted that there is a thing called a "control premium" - basically it is more valuable to own >50% of a company because in addition to having an economic stake, you can now control the company. So when you are buying a company, you generally have to pay more (20%+) than the "market price" because you are also purchasing the "control premium".

So, there is a zero sum game going on here. That control premium is going to be divided up between the buyer and the seller based on the strength of their bargaining positions. For various reasons (poison pill included) board has a stronger negotiating position in extracting the "control premium" than do individual investors. If you weaken the current shareholder's bargaining position (by for example not allowing the board to negotiate price) you increase the share of the control premium going to the purchaser and decrease the share going to the current shareholders.

FWIW the poison pill is controversial. But from a "Law and Econ" perspective - this is the main justification.

Also - since I'm on a bit of a roll - there are definitely other stories for what is going on here.

One is that poison pills kind of soften the edges of capitalism a bit by allowing directors to decide if they want to the company to be sold or not. Call it crocodile tears by entrenched management, but there is something to be said for keeping a company off the market if the hostile bidder is going to just fire workers and scrap the company for parts. Fairly, this view is not consistent with "shareholder primacy" but it has to be said that not everyone sees the world that way.

Thanks, that's a bit more of an explanation to what I was wondering about than most of the other answers.

You're welcome. Corporate governance is a surprisingly controversial area for how boring it seems at first glance.

Here's a more in depth apologetic for the interested: https://theliptonarchive.org/1980s/

Corporate governance looks absolutely exciting at first glance, because so much of our lives are determined by it. (We spend a lot more time buying products than we do voting for politicians or filing taxes, same with spending money.)

I have first hand experience of an Australian ASX company being taken private:

In that Instance it was decided by a share holder vote after board negotiations.

Then you get a cheque for the money once it's agreed and gone through.

Happens very quickly with no fuss. All very efficient.

And that's that.

I wonder if the NASDAQ or similar in the US requires a share holder vote?

1/ Yes, and you also potentially incur taxable capitals gains at a time not of your choosing, which can suck.

I had some stock long term in Tiffany. Last year, Tiffany was bought by some outfit, and I received cash for the stock. I found out about it by looking at the statement and wondering where that cash came from :-/

I have some TWTR, and I expect the same thing will happen.

Similar thing happened to me when AMD acquired Xilinx. I got AMD stock and some cash. These types of transactions are usually automated, by an entity like DTCC I would guess.

Didn't XLNX turn into AMD directly at some fixed rate?

The exchange rate was not an integer. If you have to receive a fractional number of shares it’s rounded down and you get a cash payment for the rest.

Pretty much. Your tdameritrade account will just update and stick cash into your account and explain what they did in the cost basis tab.

BTW, this is a taxable event where you might not have expected it to otherwise.

Hadn’t thought of that, this is a great way to force some taxation on billionaires who hold indefinitely!

I wonder if the federal government would ever purchase companies like this…

Your reply merely clarifies that this sale is not a hostile takeover. It doesn’t seem to answer the question, “What caused the board to change the direction 180 and now closing the deal with Musk?”

The threat of the poison pill was likely just a negotiating tactic.

It is like when an athlete's agent puts out a press release about how the player doesn't feel valued at the current club, etc, etc when they're in the middle of negotiations making it seem like they're very open to jumping ship and stirring up a groundswell of emotions from the fans. But really they're just looking for a bit more in their contract. Deal closes, player signs, the statements are forgotten in a week or two.

We'll probably never know exactly what the points of contention were in the twitter deal.

The thing is though that the price stayed the same. Elon didn't raise his price so their plan backfired? Unless you mean some additional benefits that they get?

It could just be a reflexive "no" until they had time to evaluate. Things that changed since Musk's original surprise announcement are 1) Twitter probably evaluated its future plans and worth, 2) Musk was forced to reveal concrete financing plans to prove it wasn't an offhand joke or a hostile takeover (recall, he bought a lot of shares in secret, which is an alarming sign), and 3) the stock market in general, and probably shareholders, reacted positively, which signals to the board the deal was worth doing.

The pill was put in place to prevent a hostile takeover, not to prevent any sale. Twitter accepting the offer does not constitute a 180.

A week ago, the Twitter board rejected Musk’s offer to buy Twitter for $54.20 a share.

Today, the board accepted Musk’s offer to buy Twitter for $54.20 a share.

What is that if not a 180?

Last week’s offer was a non-binding proposal (from someone with a track record of saying “funding secured” for going private transactions that were not in fact secured). The pill forced Elon to come back with a real offer that disclosed specifics about the financing. It may be the same price but it’s not the same offer as last week.

They never officially rejected it.

I think two things happened:

1. Elon Musk proved he was serious by arranging the funding.

2. Elon Musk threatened to sue the board for breach of fiduciary duty — claiming the sale was a good price and shareholders were harmed by not taking it.

And possibly a quiet third:

3. Twitter asked around and no one else was willing to offer a higher price — particularly given the downward trend of markets at present.

I think the board caved when it became clear they’d be personally liable if they refused on purely political grounds.

3a. Saw Netflix, panicked.

3a(1). Know their numbers are going to be crap on Thursday, double panicked

Regarding #2, it isn't so simple for the board, they have large institutional shareholders and sovereign wealth funds, including activist Elliot Management who can sue the board if they think the board is accepting a offer too low. Elliot[1] famously sued the country of Argentina and seized one of their warships when they defaulted on their debt which Elliot owned, they're the ones who pushed for Dorsey's exit, interesting to see if they will take the offer or squeeze Musk

[1]https://qz.com/1001650/hedge-fund-billionaire-paul-singers-r...

Elliot Management had an approximately 9% stake when they went after Dorsey [1], but have since liquidated it and own (if any) a significantly smaller portion. They’re not in the top few investors, anymore. [2]

The Twitter board was sued last year due to their deals with Elliot Management — and may not want to face a second, concurrent lawsuit about breach of duty. [3]

[1] https://www.forbes.com/sites/abrambrown/2021/04/01/jack-dors...

[2] https://www.investopedia.com/articles/insights/060916/top-3-...

[3] https://www.ft.com/content/5f3dd95f-8a7c-4f39-991a-87b2bc056...

Ah I see, then it depends if the other shareholder think the offer is fair or not

Welp billionaires are the new hostile takeover. They can just straight up buy anything they want and skip the 51% vote stuff.

This needs to be prevented in the future. The racist racist at right just bought Twitter because they're tired of being silenced. Users will just go elsewhere, rip Twitter and thanks for making Elon poor, he was getting annoying.

Regardless of the rest, Elon Musk losing a subatantial fraction of $45B won't make him poor.

I just wanted to thank you for this. This is the most succinct and easy-to-understand-for-non-investors explanation of the concept I've seen and now I think I finally understand it.

I learned all of this (and so much more) from Matt Levine's "Money Stuff" newsletter. I cannot recommend it enough.

It wasn't immediately obvious to me how to sign up without buying a subscription, but https://twitter.com/matt_levine/status/994296126055608320?s=... provides a link to do just that.

I've read a few articles here and there but this was the motivation I needed to properly subscribe.

> The board represents ALL the shareholders, after all.

This is the part I don't get. The person who bought 51% of shares is also a shareholder. How come the board can discriminate against a single owner like this, just taking away their shares by force. Could they do it to any existing owner if they wanted?

Shareholders are discriminated against all the time; companies have "preferred" and "common" shareholders. Meanwhile: nobody is actually discriminated against, because it's economically irrational to buy more than the shareholder rights plan trigger; from some light reading, it looks like no poison pill has ever been triggered (the whole point of the poison pill plan is to prevent that from happening).

As far as I know, the only instance of a poison pill being triggered was Versata Enterprises, Inc. in December 2008.

TL;DR: A competitor (Selectica, Inc.)--wishing to purchase Versata--bought over 5% of the shares. The IRS considers this an ownership change, and it imposes a penalty to discourage trading of Net Operating Loss (NOL) carryovers. A poison pill was in place to prevent this tax issue. The board executed the poison pill to dilute Selectica ownership from 6.4% to 3.9%, and that action held up through appeal to the Delaware Supreme Court.

https://www.lw.com/upload/pubcontent/_pdf/pub2563_1.pdf

Quite an interesting bit of corporate governance history. Thanks for sharing.

Do you mean held up or upheld?

the action held up; the court upheld it.

As I understand, this happens before anyone acquires 51 percent.

Is it possible to acquire up to 51% in atomic move, so there is no fade in that would make poisoning option too late ?

It would require a number of transactions as there is no single other shareholder that owns 51% in this case. So you can do a large number of transactions in a short window, which would cause the price to skyrocket. Additionally, there are disclosure requirements in place once a single shareholder reaches 5%+ ownership. Once the word gets out, everyone else starts buying.

This is the kind of thing the 15% disclosure rule is designed to prevent.

No.

The current board of twitter barely owns any shares.

https://www.barrons.com/amp/articles/how-twitter-board-stock...

The poison pill is to make it so that the person can't ever get 51% because it's not good for everyone else.

The 'short answer' to the question of 'why no poison pill' is simply because the Board reached some kind of agreement with Musk.

I like Musk when he's in his lane, I don't see any good coming from this.

Everyone is nuts to talk about 'shareholders' - who cares? As a 'consumer' - I want a good service and cheap (i.e. free) with no ads. I have zero interest in 'shareholders' of a company I'm not a shareholder in, other than legal protections.

Caring about 'shareholder value' while not a shareholder, is like caring about some rich guys bank account - when often it's a zero sum game.

Every dollar in an investors pocket should be a dollar on your pocket in term of reduced price etc..

So aside from some things he may be able to do t bring the share price up ... I'm wary that much at all will actually benefit Twitter, and he could ruin it.

I don't personally care about it, but it's an important media tool - it's how a lot of information gets out.

> Everyone is nuts to talk about 'shareholders' - who cares? As a 'consumer' - I want a good service and cheap (i.e. free) with no ads. I have zero interest in 'shareholders' of a company I'm not a shareholder in, other than legal protections.

Shareholders own the company. Which is why people care what they think.

I have preferences for how my neighbors manage and maintain their properties, but since I don’t actually own those properties, my preferences don’t mean a lot.

As a customer of a company, I can decide whether I’m getting my money’s worth. As a general observer I might have an opinion about whether the company makes the world a better place. So shareholders shouldn’t be the only story. But I don’t think it’s strange to focus on what the shareholders think, or for the company’s owners to decide on corporate direction.

My point is a lot of discussion centres around 'creating shareholder value' and 'increasing the stock price'. Many people comment on 'how to do that'.

But it's nuts - why would 'most people' who are likely Twitter 'users' and not 'shareholders' care about someone else's benefit over their own?

Twitter could very well jam up with more ads - as a sure fire way to make more money.

But not I / We are stuck with a crappier product, possibly very crappy i.e. a value transfer from our pockets, to investors.

Shareholders technically 'control' the company, they can do what they want, but what we should want them to do is 'lose money' and give the surpluses to us.

> As a 'consumer' - I want a good service and cheap (i.e. free) with no ads.

And I want world peace, people to start using their turn signals, and a pony.

We can want whatever we like. Doesn’t mean the world is going to, or even capable of delivering it.

I agree, but that's besides the point.

There is value on the table, Musk is going to try to take some away, probably in a zero-sum way.

Musk could very well jam Twitter full of ads, making it sheite for us, but more money for him.

Nobody should want that but literally a single person: Elon Musk. Everyone else, who uses Twitter, should be against it.

Why do you think Elon is more likely to make the product worse than the current management?

Twitter can make a lot more money 'right now' by focusing a lot more on ads.

Changing a few features here and there otherwise, will not somehow magically engender a ton more users.

So the 'low hanging fruit' for investors to 'unlock value' is really about ads.

More ads generally makes the product worse for users.

"I want a good service and cheap (i.e. free) with no ads."

I feel this is unrealistic. What other services are good, free and ad-free? Very few. Someone has to pay for the development cost and the upkeep, and that someone will be calling the shots.

I much prefer a "democratic" system where as a customer I pay certain amount of money for using Twitter (say, 5 dollars a month) and get a vote on future changes to a system where I am a free "user / consumer" (and a product at the same time) and some shadowy entity manipulates everything it can to its own non-public purposes.

In order to turn just a little bit more civil, Twitter needs citizens, not users/consumers. And citizens usually have to pay some tax for the system to be sustainable.

They aren't taking away anything, they would be diluting the 51% shareholder's shares. They're giving themselves the option to fend off a hostile take over by making the pool bigger so that no one can get to 51% ownership.

Sure, I accept that it's legal in the US. It just seems strange that there isn't some rule saying that the board has to treat shareholders more or less equally. Since the board is elected by the shareholder votes it seems weird that they can just redistribute voting power at will.

What if there was some minority shareholder that the other owners disliked for some reason, could they force them out too? Or this power is restricted to particular circumstances?

At the time the poison pill is setup no shareholder has the threshold. If you buy more shares and cross the threshold you did so in full knowledge of the effect.

If the pill were activated and you were diluted out you could sue over the economic harm e.g. that they effectively stole half your position-- and you'd quite possible be reimbursed for the dilution. But you'd be more or less back where you started, minus the mountain paid to lawyers and still without ownership of the company.

Keep in mind, these poison pills aren't really intended to prevent acquisition. They're intended to prevent an inequitable acquisition via takeover where the existing shareholders might have to sue to get a fair treatment. E.g. elon getting enough control that he can pick the board (which takes less than 51% of the shares due to voting power effects)... then the elon controlled board agrees to sell the rest of the company for a less equitable price but not so outrageous that the other shareholders would have an easy time suing over it.

> What if there was some minority shareholder that the other owners disliked for some reason, could they force them out too? Or this power is restricted to particular circumstances?

Diluting out small share holders happens with some regularity in smaller companies. They could sue over it-- but it usually happens when there isn't a lot of value in the company itself and if they failed to push out an old shareholder the company wouldn't continue. So the party being diluted can only really choose between letting it happen or fighting it and getting their fair share of nothing minus legal expenses.

They are treating them equally. Elon has just as much of a right to purchase those shares at the same price as any other shareholder.

Elon would not have the right to purchase the discounted shares. Only shareholders other than the one with > 15% can buy the shares for half off (till they hit the open market, of course).

Do you have a primary source for that? I don't mean news reports saying that, i mean actual legal documentation saying that's how it works? Because there's a lot of misinformation going around, and a lot of new outlets confusing cause and effect.

I find it hard to believe that would be the case, since it's needlessly discriminating against a single shareholder. The underlying game theory aspects mean that giving the hostile acquirer the warrants would be essentially irrelevant since they have no benefit in exercising them, while suffering the costs of doing so.

In short, there's no point in preventing elon from being able to purchase additional shares from the company below the acquisition offer because it would just be a waste of money for him.

The whole point of the poison pill is that the hostile shareholder is not treated equally. He would not have the opportunity to buy the discounted/newly created shares that would be triggered by him purchasing stock. In essence upon hitting the trigger he would be diluted differently to other stockholders.

Took a bit of digging but I found the SEC filing [1] and the press release [2]. I'll quote from the press release because it is more easily understood. I condensed it a bit but the gist should be clear.

> In general terms, it works by imposing a significant penalty upon any person or group that acquires 15 percent or more of the shares of Common Stock without the approval of the Board.

> the rights will become exercisable if an entity, person or group acquires beneficial ownership of 15% or more... in a transaction not approved by the Board

> each right will entitle its holder (other than the person... triggering the Rights Plan, whose rights will become void...) to purchase.... additional shares of common stock

The SEC filing is a bit dense but then if you scroll down to a bit you get

> entitle the holder thereof to purchase, for the Exercise Price, a number of shares of common stock of the person engaging in the transaction having a then-current market value of twice the Exercise Price.

[1] https://www.sec.gov/Archives/edgar/data/0001418091/000119312... [2] https://www.prnewswire.com/news-releases/twitter-adopts-limi...

>Following the occurrence of an event set forth in preceding paragraph, all Rights that are or, under certain circumstances specified in the Rights Agreement, were beneficially owned by an Acquiring Person or certain of its transferees will be void.

I'm not entirely clear whether this statement in the 8K is legal. Seems to me that it would run afoul of the boards responsibilities, especially given that it is unnecessary to achieve the result.

>It just seems strange that there isn't some rule saying that the board has to treat shareholders more or less equally.

AIUI, there is such a rule, and, FWIW, that’s why I found the OP’s explanation[1] somewhat dubious. Deliberately sabotaging the corporation for the benefit of another one that the 51%er owns … seems like the kind of thing that the courts would strike down.

[1] https://news.ycombinator.com/item?id=31160874

Poison pills have been settled law in the US for decades.

Seriously, what the heck? I joined in to echo disagreement about a justification given -- one which would (dubiously) imply that you can do whatever the heck you want with the company once you control 51% (like siphoning resources to another company you fully own).

I never disputed poison pills being legal, only one comment's justification for that conclusion.

It's not responsive to simply assert that poison pills are "settled law", since I wasn't ever disputing that, and no clear-headed, good-faith reading of my post would attribute such a remark to me.

And yet ... not only do some of you think the above reply is somehow responsive (or not a strawman), you seem to think I'm wrong to simply point out how it isn't.

Someone want to tell me what's going on? Is there some deep insight I can't seem to fathom from tptacek's non-repsonsive, dismissive reply that makes it all somehow worthwhile?

Which must be why I didn’t object to that part, only to the (explanation of the legal) justification given. Could you give my comment a re-read and ensure you were replying to the right one?

They are not discriminating. Elon can purchase the same amount of stocks (proportionally) at the same price as every other shareholder.

It's just that since the strike price is lower than the price he is offering to buy the company at, other investors are better off exercising their warrants and then selling to elon.

Why do you believe that, against what Twitter board actually said and how other poison pills worked in the past?

If those who already own stock in the 49% sell, then someone else can buy up to 49% even if the 51% holder never sells.

The amount of ownership can change for one already owning 51% if the amount of stock issued changes - that changes the denominator

Finally: there is proxy voting. Normally common stock holders have 1 vote per share. However most votes are "proxy voted" where you give your vote to someone else because "reasons" - like you can't attend but an institutional investor seems to represent your position so you proxy to that investor.

Via proxy voting, it's possible to push past 51% as a minority shareholder.

Related to this, you can create an informal alliance with an institutional investor owning a larger share in the same company. This appears to be how Musk "borrowed" the money for his takeover - the money came from a large institutional investor that makes money on both ends: interest paid on the loan plus the promise of higher returns on Twitter stock. That's what's called a "can't lose investment" that no ideology can beat.

Of course, the Twitter board famously owns no significant amount of stock which is problematic but reality - this means they have ZERO skin in the game so are more likely to shirk (or risk to shirk) their legal obligations for fiduciary responsibilities. They apparently got a legal wake up call over the weekend about this however.

> During a hostile takeover, someone buys 51% of the shares. They then elect a board of people who will approve whatever they want.

This is confusing. During the TWTR discussions, one that regularly came out is the importance of a board's fiduciary duty. Buying 51% doesn't let you take the company private, and merging at 50% of the price seems like a monumentally indefensible decision, especially when it is with the 51% holders company. I find it hard to believe you can get away with that.

Management gas extreme leeway to use it's judgement. All they have to do is claim that they will attempt to raise the stock over time price or otherwise make shareholders happier. If many shareholders disagree, they can sue for mismanagement.

This is just flat-out wrong and it's a joke that this is the top comment on a "financially-savvy" forum.

Shares aren't a blockchain, you can't just perform a 51% attack.

Absolutely incorrect, majority controlling stakes and full cash takeovers have different standards and requirements. Majority stakes usually require majority of the minority, which is not 51%.

https://www.lw.com/thoughtLeadership/the-latham-and-watkins-...

> They then elect a board of people who will approve whatever they want.

As others have mentioned, Twitter has a staggered board, meaning not all board members are up for election at the same time. Replacing the board would take years in a hostile takeover.

Patrick Boyle did a great video on this which is slightly less relevant now that the board has accepted the offer but still is a reasonable intro to corporate governance:

https://youtu.be/QXxeyOVpnCU

Sorry but this is utter nonsense.

51% of a company is not some magic ticket that allows you to do basically anything (including screwing the other 49%). It just doesn't work that way. There are certain thresholds that allow you to do more and more things but if you're in control of a company you still have a fiduciary duty to the other shareholders, even small minority shareholders. This is why minority shareholder lawsuits are a thing. This is what makes the entire corporation system work otherwise the 51% would be constantly screwing over the 49%.

Take your example: if you buy 51% of the shares for $50/share and then try and merge at an effective $25/share. Well, that's illegal because you've failed your fiduciary duty to the 49%. You're effectively trying to steal from them.

Also, you can't just acquire 51% of a company. There are rules about that too. There are thresholds here too. IIRC more than 5% and you have to inform the market of taking a large position. More than (IIRC) 10-20% and you have to launch a formal takeover offer. There are rules about how that works too.

> Sorry but this is utter nonsense.

Can you please make your substantive points without name-calling? There's a site guideline that asks you to do just that.

"When disagreeing, please reply to the argument instead of calling names. 'That is idiotic; 1 + 1 is 2, not 3' can be shortened to '1 + 1 is 2, not 3."

https://news.ycombinator.com/newsguidelines.html

If that guideline is meant to cover the words “utter nonsense” it is not intuitive to anyone

I think the point is that you can strongly disagree with a statement without painting its author as incompetent. Regardless of whether that was the intent, that's certainly how it reads.

Going one step further, you can strongly disagree with a statement without attaching a value judgement to the other person's argument.

In spirit, this rule should hold even if you aren't attacking the author directly but are disparaging the value of their perspective.

That is simply unnecessary and you can just refute the point directly.

I don't see much daylight between "utter nonsense" and "that is idiotic".

I think you are being too harsh on parent.

How is that worse than people literally calling each other's comments bullshit on HN?

Examples: https://news.ycombinator.com/item?id=6805295 https://news.ycombinator.com/item?id=5111959 https://news.ycombinator.com/item?id=6410617 .. and many more

It isn't worse - it's the same thing.

What "name-calling" would that be exactly?

I see "Sorry but this is utter nonsense" as ad hominem, a put down, with overtones of a dismissive "wiser" person dismissing out of hand what is said. That effect of this psychological slight outweighs the fact that they did back up their argument afterwards and didn't leave it as just an unsubstantial comment.

Kind of like a microagression: https://en.wikipedia.org/wiki/Microaggression, I think...

Human language and idioms are hard to create rulesets for. Probably "name-calling" is too specific, but "microagression" may not be understood by all. However it is sad if we need to lawyer the guidelines.

No calling an argument "utter nonsense" doesn't imply anything about the person making the argument. You may think it is ad hominem but technically it simply isn't since it isn't directed to a person but rather their argument.

However, in this context, calling their argument "utter nonsense" is utterly unnecessary and only serves to up the ante.

It isn't just about being personal (though that's particularly bad). It's about not tossing in pejoratives and putdowns. The HN guidelines are clear about this:

"When disagreeing, please reply to the argument instead of calling names. 'That is idiotic; 1 + 1 is 2, not 3' can be shortened to '1 + 1 is 2, not 3."

We don't want name-calling (in this sense) because it leads to dumber, nastier internet discussion.

It's also particularly easy to avoid. If you take out its first sentence, the GP comment loses nothing but hostility and becomes a far better HN contribution.

https://news.ycombinator.com/newsguidelines.html

I think you misunderstood my comment. I agree with the spirit of the rule and hold a similar view to what you explained.

I was pointing out to the commenter that while it was not technically as hominem, it is still not acceptable and doesn’t add anything to the discussion.

Oops, I think I might have replied to the wrong comment. Sorry about that!

Good point (I might be replying to edited version?)

There is no edited version

You may very well be right. As I said in another reply, I'm mostly quoting a delicious bit of writing Matt Levine published last week.

I suspect that none of what I said is easy or even likely- but I do believe the risk of such things is real and that's why the board set up a poison pill, to ensure they got a real deal and not something more aggressive.

51% of valid votes is a magic number that allows you to do basically anything (including screwing the other 49%).

This is not true! Stock is not a blockchain!

But doesn't the reduced cost screw all shareholders out of their value?

Besides, when the 51% owner decides to merge at a lower price, can't other shareholders simply refuse to sell?

All this makes it sounds like shareholders have a lot less power than I used to think they had.

The poison pill dilutes everyone’s shares. The hostile actor could / would dump their shares after the hostile take over attempt. That would crash the price.

Alternatively, the board would keep creating shares as the hostile actor attempted to buy more. Keeping the price the same or higher. Eventually the hostile actor would still take the company but at a much higher initial cost. Once purchased they could still do a merger (51%).

At the end of the day it simply forces the hostile actor (in the sense of buying shares) to pay more.

In this case, the board basically had to sell. Else they’d open themselves to lawsuits anyway. If Musk had a failing bid. He’d dump 10% and instantly the price would be down 40-60%, plus people would lose confidence and drop further. Then the board would be open to failing to do their job as representatives of the share holders.

> The poison pill dilutes everyone’s shares.

This is factually incorrect.

The poison pill is specifically designed to dilute the hostile actor's shares, while leaving everyone else mostly untouched (depending on the pill's mechanisms).

> The hostile actor could / would dump their shares after the hostile take over attempt. That would crash the price.

They could, but would they? This would hurt them, too, so it rarely happens. That being said, Musk certainly has enough money and pettiness to lose billions to prove a point, but very few hostile takeover investors have that much money to burn.

> Alternatively, the board would keep creating shares as the hostile actor attempted to buy more. Keeping the price the same or higher.

How would they prevent the market from devaluing the stock as more is printed? This is like govts trying to print more money, it leads to inflation.

> Else they’d open themselves to lawsuits anyway.

If the market thought Twitter had better plans for future profitability, they could be sued for the opposite, going with Musk. They can basically always be sued if enough shareholders think they're not doing a good job.

> He’d dump 10% and instantly the price would be down 40-60%, plus people would lose confidence and drop further.

Putting aside the likelihood hostile takeover investors would waste billions in spite, it seems unlikely that a failed takeover would change the stock price for longer than a news cycle. All the fundamentals are unchanged, so it's more likely the price would return to what it was before.

> How would they prevent the market from devaluing the stock as more is printed?

The important way to think about it is not price-per-share but price-per-percent. The share price on the market likely would fluctuate. It would be diluted as you pointed out, but if the attacker really wanted to own it, they're going to have to be the highest bidder on the market for a majority of the shares. They already have to over-value those shares, since that share that brings them >50% is WAY more valuable to them than every share leading up to it.

If Elon owned 15% and wanted to reach 50%, he has to buy 35% of the shares to reach control (50%). If you double the number of shares of existing shareholders but not Elon, then Elon would own 7.5%. Now he has to buy 42.5% of the company. Assuming the absolute value of the company didn't change, Elon will have had to buy 15%+42.5%=57.5 of the company just to buy what was 50% yesterday. This effectively adds a 7.5% premium to buy a controlling amount, and that premium is divided up among shareholders who sold out post poison pill.

Oh, and along the way, the demand to buy all those shares means that the attacker has to be the highest bidder. And that kind of demand would create a massive shift in the market. If enough of shareholders thought the price was too low, (or realistically a small fraction of them, since companies like index funds managers don't actively trade shares), they wouldn't sell to the attacker and the attack wouldn't be possible - so an attack has a huge upwards pressure on the price. every share gets more expensive than the last.

> it seems unlikely that a failed takeover would change the stock price for longer than a news cycle. All the fundamentals are unchanged, so it's more likely the price would return to what it was before.

Elon is basically a meme, just look at this tweets affect on the markets for things like crypto. Elon being associated with something makes it more valuable. When Elon announced he was getting involved and buying shares, they went up in price double-digit percents. If he said "jk i don't think twitter is valuable" AND dumped a huge load onto the market at once, the price would certainly crater for a while, even if, yes, one day it may return to "normal". But few investors would be happy to stomach that crash, especially since the board is judged in part on share price.

* technically you need >50%, but the math is way rounder and easy to rationalize to use 50 not 51.

* also, I don't know the details about the specific poison pill for twitter, but I'm just picking nice numbers for the math purposes

* this is also a big critique of passively managed funds economically - they limit the market dynamic and force buying/holding of companies that "the market" otherwise doesn't value

Why does the board get to sell my shares?

>Why does the board get to sell my shares?

They don't. The deal has to be approved by shareholders (of stock with voting rights).

Wow, now this is great explanation.

Nobody knows yet why the board relented, but the scuttlebutt seems to be that Twitter arranged an internal valuation once Musk put a price on the company, presumably as justification for an internal plan that they'd announce as their alternative to acquisition, and the valuation actually showed Musk was overpaying for the income Twitter was likely to generate.

(If the board hadn't relented, Musk's next step would have been to arrange for a tender offer, which goes directly to the shareholders, but does not involved Musk acquiring new shares, but rather just a commitment to buy those shares if the board drops the poison pill. Successfully getting that commitment would be a very strong signal to the board, which would likely then drop the shareholder rights plan and allow the acquisition to proceed. But Twitter's board skipped those steps.)

Thank you for the most concise, accurate, and unbiased answer I've seen.

Also on the right a bunch of governors / AG's were rumored to be planning to go after twitter to try and destroy it if they didn't accept Musks bid. If Elon had bailed and started a competing service (with some of his 40B) it's likely the stock would have dropped sharply.

That would have left the board in a very ugly spot, and politically in places like florida doubly so (destroying pension values / turning down a good offer for nothing etc etc)

Trump has already showed that 1 huge influencer cannot make a social network on their own

> was overpaying for the income Twitter was likely to generate.

This isn't a scientific fact, this is Management's guess. Management has been terrible at achieving long-term predicted income in the past.

The days of social media are over... You'll never see another valued at this. We're entering tech bubble 2.0

The poison pill was intended to prevent a takeover without the board’s approval (buying 51% on the open market)

The board is negotiating an approved takeover which is entirely different

I.e. the board was saying “you can only buy Twitter if we say so”

There was no reversal of intentions

Does anyone know if the terms were made more favourable to Twitter since the adoption of the Poison Pill?

I think that, as far as the public is aware, there weren't terms prior to the adoption of the poison pill. Musk bought a bunch of shares, and was looking to buy more. The poison pill was the board preemptively saying "we see what you're doing, and you have to go through us to accomplish it".

This is not true. The poison pill was in response to Musk's original offer.

> Twitter adopted a limited duration shareholder rights plan, often called a “poison pill,” a day after billionaire Elon Musk offered to buy the company for $43 billion, the company announced Friday.

https://www.cnbc.com/2022/04/15/twitter-board-adopts-poison-...

The key change was that funding is now secured; the initial bid was contingent on securing funding.

According to Matt Levine’s column today, the poison pill may have just been a tactical move to guarantee time for negotiations while preventing the possibility of a hostile takeover (a potential BATNA for Musk).

This seems to be what happened.

The price is the same. Matt Levine's coverage so far has implied that the effect of the poison pill was to force Musk to be more concrete and less hypothetical, which happened.

This is simply wrong. The board outright rejected musk's offer and instituted a poison pill to prevent a hostile takeover of twitter by musk. So elon simply bypassed the board of directors and went to the major shareholders. It is the major shareholders who has final say, not the board of directors. Elon convinced enough of the major shareholders to accept his deal and once that happened, the board of directors has no real say. They have to do what the major shareholders say since the major shareholders are the ones who hire and fire the board of directors.

> I.e. the board was saying “you can only buy Twitter if we say so”

The board say "you can't buy twitter". So elon just talked to the board's bosses ( major shareholders ) and the board's bosses said "elon can buy twitter".

There's a bit of nuance here. Major shareholders wouldn't say "elon can buy twitter."

Major shareholders don't care who owns Twitter. They don't give permission. They only care about the return on their investments. They often represent limited partners or are part of a stock fund, and have their own fiduciary responsibilities. Or they just want to make their own money.

In this instance, major shareholders would go to the Board and say, "show me your plan to increase the stock price to over $54/share within 12 months." This could be by finding another buyer, having a roadmap to introduce new products/enter a new market, raise prices, or even acquire another company. Shareholders would evaluate the execution risk of said plan vs. the zero risk of "Elon gives me $54/share tomorrow" and decides what is best for them.

The shareholder then weighs in to the board: "I don't believe in your plan, if it comes to a vote I will vote in favor of Elon's offer." Repeat that for all of the major shareholders.

In this specific case, from everything I've read Twitter had no compelling roadmap, no other buyers willing to make an immediate offer, no strategy, troubled leadership, a 10% decline in stock price, and prevailing economic headwinds. No one believed they could beat Elon's offer.

So the board looks at the intent of the preponderance of the shareholders and rapidly realizes that they would lose any battle for control of the company. It would cause huge distraction and possibly open them up to lawsuits for not meeting their fiduciary responsibilities.

The board then goes back to Elon and decides to accept the offer.

Yep. Also: When people point out that twitter traded more in the past-- what matters isn't twitter's absolute price, but twitter's price relative to some benchmark.

For example, if you use META as the benchmark then Elon's offer is 143% of Twitter's all time high. Meta alone is perhaps not really the fairest benchmark, but his offer is 86% of the ATH if you just use the Nasdaq composite as a benchmark which is still pretty good. A fair 'synthetic twitter' would probably price the offer somewhere between these two.

I would have liked to produce a better synthetic benchmark than just those two options, but didn't really feel like doing two hours of programming and data collection just for a HN post-- what I would have done is grabbed the historical prices for all high volume US equities and ETFs and found a set of coefficients (including allowing negative ones, e.g. shorted stocks) for all equities except twitter that predicted twitter with the lowest L2 norm, and maybe applied some L0 penalty to make the collection sparse and reduce the overfit. Perhaps I'd just try all $stocks choose 5 subsets with 5 stocks and choose the best-- l2 fits are fast, and I doubt 5 stocks can meaningfully overfit a couple years of data.

Why is a benchmarked price the right way to reason about this? Because a substantial part of twitter's price is the overall market, a substantial portion is its sector, etc. To the extent the investors want that non-twitter-specific exposure they can get it in other ways (e.g. by buying synthetic twitter or just a market index).

If you could sell twitter today for 143% of the benchmark rate, then put the income into the benchmark then sell the benchmark later when its value goes up-- you'd do much better than just holding on to twitter for the same amount of time, unless something changed about twitter to make it perform a lot better relative to the benchmark.

From that perspective twitter's roadmap would need to be pretty good to overcome the offer.

This is not correct. The board negotiated a deal with Elon after putting the poison pill into effect. If Elon had made a deal directly with the stockholders, that would have triggered the poison pill. He surely spoke with and lobbied the stockholders for support, but the deal he agreed to was approved by the board.

> The board negotiated a deal with Elon after putting the poison pill into effect.

There was no "negotiation" with the board. Elon just made an unsolicited offer and said take it or leave it. The board "left it" and yet here we are.

> If Elon had made a deal directly with the stockholders, that would have triggered the poison pill.

What? That's not how poison pills work. Poison pills exist to prevent hostile takeovers. It isn't there to prevent someone from talking to the stockholders. If the stockholders agree to the deal, it is no longer a hostile takeover.

> He surely spoke with and lobbied the stockholders for support, but the deal he agreed to was approved by the board.

Yes. The deal was first rejected by the board. And then the deal was approved by the board. Why do you think that was? What made the board change their minds? I wonder. You might have a point if elon raised his offer from $54.20 to a much higher number. But all reporting indicates he didn't change his offer.

Of course the deal was approved by the board. My point is that the shareholders made them approve the deal.

> The deal was first rejected by the board. And then the deal was approved by the board.

Source?? The deal was never rejected by the board. Instituting a poison pill was not a rejection. Twitter made it clear with the poison pill anouncement that they had not decided on Musks offer yet.

> The Rights Plan will reduce the likelihood that any entity, person or group gains control of Twitter through open market accumulation without paying all shareholders an appropriate control premium or without providing the Board sufficient time to make informed judgments and take actions that are in the best interests of shareholders,” the company said in a press release.

> Twitter noted that the rights plan would not prevent the board from accepting an acquisition offer if the board deems it in the best interests of the company and its shareholders.

https://www.cnbc.com/2022/04/15/twitter-board-adopts-poison-...

I know it's a big ask, but it would be kind of nice if HN added a flag context situation so one could flag a comment as "has literally no idea about how corporations work" rather than just a generic flag.

Um, I'm afraid you might be the one getting flagged :)

Shareholder pressure, which was rumored to include governors and ag's in states with pension investments in twitter who don't like twitter, was out there.

They risked a decline of twitter's stock price if Elon withdrew his offer AND sold his (largish) block of shares AND announced a competing service with some of his billions.

Twitter has its HQ in SF, but that doesn't mean it can blow florida pension money because they don't like musk.

So yes, the board, taking into consideration shareholders and their duty there, may have been in a tough spot. It certainly doesn't seem like they got any increase in price.

as someone with limited understanding of how corporations work, i had a hard time understanding who was factually correct in the exchange.

So, as a rough, the board determines what happens, and the shareholders can notionally replace the board. The board _can_ listen to the shareholders, but are by no means obligated to and in the case of Twitter in particular, the board elections happen on a staggered rotating basis so even a majority shareholder could not immediately replace enough of the board to obtain a majority.

This is totally false. The board owes a fiduciary duty to shareholders. It is almost certain that if they imploded the deal for political reasons that places like florida would have sued.

You really don't know how this works.

https://www.youtube.com/watch?v=98EzC_1GvGE

There have been tons of cases about this, where boards ignore rights of shareholders or those with minority interests.

The fiduciary duty exceeds expressed shareholder preferences -- if the board believes that a particular action is not likely to improve value, they don't have to do it, even if all their shareholders tell them to (though, of course, they might be likely to be voted out in the next election for same).

> but the deal he agreed to was approved by the board.

Yeah, probably as qiskit suggested, because the major shareholders told the board to pull their heads in and take the money.

Given the context of this discussion is a question about why the poison pill didn’t prevent this bid from succeeding, I think it doesn’t matter whether the board accepted because of negotiations with Musk (willingly) or because of shareholder pressure (through gritted teeth). The point is, the board approved the deal so the poison pill didn’t trigger. If they rejected the deal, the poison pill would still be a factor.

At least that’s my understanding.

Lol this is completely wrong.

Mysterious why you get downvoted so much.

Musk has spent the last days talking to other big shareholders as is widely reported in mainstream news. It's not some far fetched conspiracy theory.

Yes, technically it is correct that this combined shareholder pressure does not oblige the board to comply, but for sure this adds a ton of pressure. Even more so given the malperformance of Twitter as a company.

Add to that the weakness of the board which has zero founders, and none owning any meaningful amount of shares themselves.

The poison pill would only take effect if someone purchased >15% of shares on the open market—going around the board. Elon made an offer to the board directly which they can accept without triggering the poison pill.

The Poison Pill plan was from the Board, to stop Musk from following through with a hostile takeover. But Elon reportedly convinced numerous large shareholders of his plan[1]. Even if the Board isn't a fan of it, the Board of a publicly traded company is ultimately beholden to their shareholders, so if the shareholders are convinced, they need to consider it.

1. https://www.reuters.com/business/exclusive-twitter-under-sha...

The poison pill was a negotiating tactic to discourage Musk or at least get him to raise his offer.

What happened? Simple. Large shareholders are in favor of the sale.

The board here doesn't "sell" Twitter. All they do is recommend to the shareholders to accept the offer. I mean it's not quite as simple as that because there are rules about making formal takeover offers and boards can (and do) negotiate with potential buyers who may exact conditions like not seeking other offers and so on.

But ultimately this is up to the shareholders and the board is just reflecting the will of those shareholders to sell.

> What caused the board to change the direction 180 and now closing the deal with Musk?

Enough of the large shareholders behind the scenes backed the deal for whatever reason. Who, what and why? We'll never get the real story. Not in any newspaper, blog or whatever. I'm sure we'll get some fanciful stories, but that's all it'll be. Fanciful stories.

The board of directors aren't the ones that have the final say. It's the major shareholders. Usually, the major shareholders back the board of directors because they are the ones who elect/hire the board of directors. Somehow, Elon and his backers convinced enough of the big boys to back him instead of the board of directors. Simple as that. Maybe he offered them free a roadster, starlink setup or a seat on a future spacex mission to mars. Who knows. But elon outmaneuvered the board of directors somehow.

The shareholder's control over Twitter is not as direct as you are suggesting. Even if 100% of shareholders were supportive of Elon's deal, they could not immediately force the board to accept the offer. If the board refused to approve the deal, the shareholders' mechanism of control would be to elect new directors. But the company's bylaws do not allow for that to be done immediately. They would have to vote at the next annual meeting. And I believe Twitter has the protection of a staggered board of directors, meaning that only a portion of the board is up for election in any year. The end result is that it would take several years for the shareholders to elect a new board in place to then vote in favor of the sale.

> The shareholder's control over Twitter is not as direct as you are suggesting. Even if 100% of shareholders were supportive of Elon's deal, they could not immediately force the board to accept the offer.

Yes they could. If literally 100% of the shareholders opposed the board, the board would lose indemnification from shareholder lawsuits for any actions it took, up to the difference in value between the tanking share price and Musk's offer. No effing way they would stay obstinately opposed in that case.

The poison pill provision and Elon's takeover are not mutually exclusive. It's in the board's best interest to gain maximum leverage over Elon. A poison pill puts the board in a better negotiating position in discussions with Elon allowing them to get better terms. Once terms are agreed they are free to repeal the poison pill.

Elon submitted his final terms, there won't be negotiations, based on current public statements. As noted by others, the poison pill is not even in actual effect.

Well, 1) He publicly claimed it was his final terms, but there is no reason a board should not at least try to use any leverage they have to try to interrogate that claim.

2) The valuation is not the only thing the board and Musk need to agree to. There are break up terms, ability to accept a higher offer if one materializes, liability in case of funding breakdowns, antitrust assurances, etc etc. So again, any leverage is useful.

Poison pill can be used for price negotiation, not just blocking an offer. Prevent hostile takeover and force the buyer into the negotiation table. They are now in the negotiation table.

The rumor is that the offer to be accepted is the same, so it wouldn’t have worked as intended, but that doesn’t mean it wasn’t worth trying.

Not quite the same - pre-pill, Musk did not have funding lined up. Post pill, he produced written documents about how he was going to fund the buyout, and had to promise to buy all the shares, not just the first 51%.

If they did the poison pill they have to show strong results to prove that the company is more valuable than the offer and that they are better shepherds of the company. If Twitter announced weak results in the upcoming earnings call in these market conditions, their stock would fall hard. If his bid were to be rejected, Elon would sell his 9% stake which would be another blow. The current board can't survive this. They will be sued for not performing their fiduciary duty.

Nothing is ever set in stone. He had the money and $43 billion is too enticing to pass up given that the stock has done nothing since the IPO.

Critically, the price didn’t even shift that much given his takeover offer… which is just nuts. If someone offers to buy all the stock and it doesn’t shift up to at least close to the offering price, then something is wrong with either public perception of the company or the entire stock market.

It eventually drifted up, but you see other companies where a hostile takeover offer is cause to halt trading due to how fast the price spikes…. Which did not happen for Twitter. Twitter is not a “blue chip” stock which people expect stability from, perhaps even a gasp dividend… but nope, it’s a tech stock with none of that… yet is weirdly stable. That’s screams “complacency” to me and complacency is fertile ground for business, either by outside forces via hostile takeover and new management or a new disruption from a new market entrance. Given the network effect pressure it’s obvious that hostile takeover looks, at least from a “running the business” perspective, to be an obvious move.

Like many business decisions it just looks to me like “who will gamble on a bet this big”… and these days it’s individual billionaires who can afford to make bets like this. It’s a second golden age of capitalism, and I’m looking forward to the next Great Depression and the much needed cultural rest wth respect to assholes with too much money.

> If someone offers to buy all the stock and it doesn’t shift up to at least close to the offering price, then something is wrong with either public perception of the company or the entire stock market.

No, it's a reflection of uncertainty over whether it will happen. Present value is not the offer price, since it's not guaranteed, and also accounts for the time for the deal to close - $54 in a year isn't worth $54 today. Regulatory risk isn't a big deal here, but is elsewhere, like ATVI trading at a significant discount to MSFT's offer.

TWTR is up significantly today since there's a binding deal now.

There were doubts about the bid. Musk had no financing. Now he has financing. The market has moved.

If he’d come back last week with a “tee hee jk” tweet about buying Twitter, everyone would have taken it in stride and then mocked those who bought the rumour to get run over by the news.

They might not want to end up like Yahoo where there was an offer not accepted then the stock just went down and down from there. With the near certain recession coming the board would be on the hot seat hoping that the stock price would eventually go back up while Elon would be nagging them from the sidelines the entire time.

My understanding was that the poison pill would not kick in until someone owned 15% of the common shares[0]. Musk owns less than that, so the poison pill has not activated. However, Musk claims to have funding for an offer such that he did not need to buy the shares to reach 15%, instead he just said, I want to buy them all -- everything for $46.5B.

[0] https://www.cnbc.com/2022/04/15/twitter-board-adopts-poison-...

It seems that many people considered the poison pill anouncment as a rejection of Musks offer. It was not. Here is a rough sequence of events:

Musks asks the board if he can buy Twitter.

The board institutes a poison pill to prevent any shenanigans while they consider the offer / to give them leverage.

The board decides to accept musk's offer. Musk did not have to do a hostile takeover by buying shares in the market, so the poison pill never triggered.

David Sacks' take on this (thread):

„Things that must be true if Twitter’s board is ready to accept @elonmusk’s offer:

1) they did a soft market check and there were no other bidders.

2) @Jack is on board.

3) the pressure campaign worked.“ (cont.)

https://twitter.com/davidsacks/status/1518623080557342720?s=...

and https://twitter.com/DavidSacks/status/1518626769942679552

4) as some of the comments have noted, earnings this quarter must also be underwhelming. The next earnings call is scheduled for Thursday.

The legality of a poison pill is defined by case law of of Unocal vs. Mesa Petroleum.

https://en.wikipedia.org/wiki/Unocal_Corp._v._Mesa_Petroleum....

Basically a company can ONLY create a poison pill IF and ONLY IF:

* the tactics of the party doing the hostile takeover are "coercive"

* the hostile takeover will likely result in dissolution of the company

Neither applies to Twitter in any serious sense. Musk's methods are anything but coercive under the law per point #1. A change in direction or operations is NOT legally the same as point #2.

Additionaly, board members are required under law to maximize shareholder value under the rubrik of profit maximization (eBay vs. Newmark) and public company board members can be PERSONALLY legally liable for lost profits and punitive damages.

https://www.lexisnexis.com/community/casebrief/p/casebrief-e...

It's VERY LIKELY that the Twitter board was informed of these cases (again, hopefully - these are legal fundamentals of being on a corporate board you'd be stupid not to know ahead of time).

As a result the Twitter board appears to have "straightened up and are flying right" in terms of law and potential legal liability now.

Again: I'm utterly mystified that boards (especially in "Tech") do not seem to know basic stuff like this and let companies run riot in ways that puts both the board and executives at tremendous personal legal and financial risk.

I'm gonna go ahead and say this comment is misleading. The board is obligated to make decisions that they believe in good faith will maximize shareholder value. If they can come up with a reasonable explanation for why twitter is worth more than 54.20 (like it being worth 70 last year) they can go ahead and decline the offer.

Notably, from one of that post's own links:

A board can use the protection of a rights plan to respond to an underpriced bid, counter the tender offeror's timing and informational advantages, and force the hostile acquirer to negotiate with the board.

Why are you getting down voted? I'm serious, it's weird. A lot of views here that board can do anything it wants, can destroy shareholder value through poison pills for political reasons etc. No.

There were actually threats by pension funds in right wing states to come after twitter if they didn't do the deal and imploded it for political reasons.

The downside to the stock from a) loss of offer, b) sale of musk shares and c) launch of a competing service by musk might have been pretty significant.

The board was in a tough spot. Doesn't look like they were able to negotiate a larger price.

You keep posting this same statement over and over again -- it's starting to look like you're pushing an agenda.

The truth is, that no, corporations do not have overriding fiduciary obligations to their shareholders in the simplistic way that you seem to be inferring. This cannot be legally enforced so expeditiously. You seem to be taking your position from youtube and political opinion pieces (e.g., reframing the vindictive and opportunistic threats of right-wing AGs) rather than corporate law.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1352595

The argument that board members can do what they want or do not have a fiduciary duty are so false its honestly not worth discussing further at this point.

The question of expeditious enforcement is a separate factor. Twitter is a Delaware corp so it's not as horrible as it would be elsewhere, but no question the enforcement side is less than ideal.

Enforcement controls whether and to what extent they can do what they want. That’s the point.

Also, not sure what you mean by “ideal”. You seem to be assuming an unstated ethical frame there.

I agree on enforcement.

What made this unique is that very early on there was relatively high profile interest from folks (DeSantis) who I'm guessing might try to make a point (they seem to be working towards a national profile vs just FL local). There is a naivete here that AG's offices are impartial in enforcement, they are often highly highly selective in enforcement efforts.

Securities litigation (broadly) has been going pretty strongly.

The parent comment I was engaging with had a substantive comment citing case law in this issue that at the time I commented was voted down.

Your article is also interesting.

My point was that this was trending towards a litmus test type political issue.

Elon was offering to let shareholders vote on the plan. Board was doing a) a poison pill, b) had a staggered board term setup, c) had the founder criticizing them, d) had some bumpy history and e) were faced with wading into an ugly political fight with poor optics given his offer.

So my own personal view is that Elon came with a surprising amount of leverage. What folks don't realize is that doing $43B deal at this speed is unusual.

I have a very cynical take on this. Assume that the board members are acting for the board members, no one else.

If Elon buys Twitter, what happens to the board? Well, he can fire them all. They may prefer to remain board members, with the money and power that comes from that. So the poison pill, while it may be offered in the name of "protecting" the existing shareholders, is really a way for the existing board to remain in power.

But that won't work if the offer is good enough that the existing shareholders want to take it. Then the poison pill becomes something the shareholders don't like, because it prevented them from doing what they want. Depending on how badly the existing shareholders wanted the offer, the board may not remain in power that way either.

Note well: There may be details in the way all this went down that don't fit in my cynical little narrative. But absent knowledge of those details, this is my suspicion of what's really driving the poison pill.

https://investor.twitterinc.com/corporate-governance/board-o...

The board includes karaoke maker, computer professor and a salesforce co coo. You might be on to something, I doubt many characters will find themselves on such a high profile board in the future.

Like everything in finance, simply talking or threatening something is enough to make it real. The actual pill or action is rarely ever wanted or needed, it’s like the meta verse of bluffing.

Money talks, talk walks.

As an aside, I have no direct proof but I'm convinced that Twitter is massively overvalued. The board could've just been fishing for a higher offer.

This question and a lot of the replies I think are really caused by a failing of news media to set explain what’s happening, and set expectations.

Unless twitter had some crazy annual report under its sleeve there was no way anyone was valuing it at over 54.20. That doesn’t mean that the board has to accept that offer and it doesn’t mean they have to take any Jack or Jill that makes that offer seriously. But it does mean if someone who can clearly afford it shows serious interest the deal will probably, at least possibly, happen.

The poison pill was never a rejection of the 54.20 or price. If you read something that gave you that impression go back and look up the author, and never read them again. They did you a disservice.

>> What caused the board to change the direction 180 and now closing the deal with Musk?

He secured financing for the deal.

"Funding secured"

They also probably wanted to buy time for a counter-offer to show up at a higher price.

True, where were rumours Thoma Bravo were trying to put together a deal but that seems to have gone quiet.

The two biggest threads that seem to be coming out: 1- a number of large shareholders are on board 2- (probably related to the prior point) no one seriously thought Musk would be able to secure the financing, but he did. Remember, this is the guy who promised to do a take-private of Teslas with "funding secured" when it was very clear no such funding was secured. The Board, understandably, didn't want to waste time negotiating with Musk and said "show us the money"

This is a good piece (before Musk had secured the financing): https://www.bloomberg.com/opinion/articles/2022-04-20/elon-c...

> Another point I would make is that Twitter’s board is doing a decent job of (1) asking these questions and (2) forcing Musk to answer them. In a sense, launching a tender offer is a way for Musk to put pressure on the board to do a deal. But in another sense, forcing Musk to launch a tender offer is a way for the board to pressure him to find financing, which is a prerequisite to a deal and not something he would do on his own. In his own life, Musk is very casual about what counts as “funding secured,” as we know now from repeated experience. Writing a tender offer document will force him to be less casual.

> Broadly speaking, what has happened so far is (1) Musk offered the board $54.20 per share to buy Twitter, (2) the board said “show us the money,” and (3) Musk is working on it. If he comes up with the money, then the board will have to make some decisions, but right now the ball is in his court.

The poison pill says elon cant buy more but current shareholders can buy more at a discount relative to the stock market. Basically Elon was just going to shell out slightly more money or fail and everyone who didn't buy is screwed.

It however takes shareholders to want to buy more. Twitter is quite undefended. Poison pill was never going to be effective in any major way. At most they were going to delay the inevitable here.

The media coverage of the poison pill was pretty bad, this was not going to be effective at stopping anything. The bigger news is why is Twitter so undefended. It makes sense from Jack Dorsey's pov, he was backing off. However even a saudi prince incorrectly believed he still owned twitter stock. It's super unusual for a S&P500 company to be so undefended.

Yet worse, something that I have never seen happen, there are a ton of S&P500 companies that are undefended. This isn't true in other country indexes. What made the US stock market so offensive? I checked all my US holdings and somehow each of them are healthy with the only exception being Tyson. The stock market is going to blow up?

DOW is down -7% YTD. S&P500 is down -11% YTD. With inflation at 8.5%, those are down alot.

> However even a saudi prince incorrectly believed he still owned twitter stock.

Wait, did I miss something on this? Last I had seen he still owned the stock but rejected Musk's offer.

https://twitter.com/Kaitain_US/status/1514645842463891463/ph...

https://twitter.com/zerohedge/status/1514747126210863108

He sold his shares in 2018.

What do you think made him sell in 2018 but still think he owned stock?

> Last I had seen he still owned the stock but rejected Musk's offer.

Musk did ask him a) how much stock the Kingdom owned, and b) their views on freedom of speech[0]

I didn't see a reply :)

[0] https://twitter.com/elonmusk/status/1514683079968931841

Musk doesn't care what the Kingdom does, he is just trolling.

What do you mean "undefended?" A drop-in stock price?

I assumed that the board did't want to end up in court for breaching their fiduciary duty [1]. But that could just be spin.

[1] https://twitter.com/elonmusk/status/1514718700674306052

What caused the board to change course was that Elon Musk filed with the SEC showcasing that he actually has $46 billion in funding secured, via an amended 13D filing [1].

This led Twitter's board to take his offer more seriously and many shareholders to ask the company not to let the opportunity for a deal slip away [2].

[1] https://www.sec.gov/Archives/edgar/data/1418091/000110465922...

[2] https://www.reuters.com/technology/exclusive-twitter-set-acc...

I mean, you have to respect Elon's consistency, if not the substance - "funding secured" filing to the SEC on 04/20 for an offer at $54.20.

It's amazing. You have to think that $54.20 is a number that Musk insisted on just for a prank. Do we seriously believe that the deal wouldn't have been done at a round $54? If you think it could, that's Musk overspending by >$150M in order to make a pot joke.

It's a way for him to essentially flip off the SEC while his fan base cheers along, for doing something that's effectively impossible for the SEC to challenge legally. It's probably worth a lot more than $150mm, as obnoxious as it is imo.

It is very on brand.

Musk has a flair for showmanship and a track record of converting memes into cash.

I think Elon Musk's Raodster[1] was the most amazing piece of cross-brand marketing in history. I couldn't even speculate how much it added to both Tesla and SpaceX valuations.

https://en.wikipedia.org/wiki/Elon_Musk%27s_Tesla_Roadster

The original "Funding Secured" tweet was about taking Tesla private at $420

Which would have been a deal actually for whoever did that at $420. But yeah, I wouldn't call him a normal MBA business type

The $420 price was also before a 5-to-1 split if I remember correctly so that would have been a 13x bagger

The idea of the ”poison pill” is to make it possible for board members to strenghten their ownership by issuing new shares to existing owners with a discount in the event that one single outside entity buys a significant portion of the shares.

It is artificial dilution, which in practice makes it possible for the board to cause heavy short-term losses to anyone attempting a hostile takeover: the market reaction to dilution is predictably a lowering of the going price of the stock unless the news comes with significant and credible hype about future profits.

The risk of this happening is what is thought to stave off the takeover.

> make it possible for board members to strengthen their ownership by issuing new shares to existing owners

This poison pill does not strengthen Twitter board members' ownership because they don't own much Twitter stock.

Seems like it's a standard practice, and the news just overhyped the whole thing.

In essence.

The thing to keep in mind in all of this is none of this was ever about what's best for the users (current ownership vs. new ownership). It was always about whether the existing owners would get screwed in the takeover. User welfare barely enters into the story.

This is France and Germany hammering out the details of who owns Alsace–Lorraine; Twitter users themselves are just Alsace–Lorraine peasant-farmers.

Matt Levine:

The poison pill left “Musk two main options. One is to negotiate with Twitter’s board and try to strike a friendly deal. This might be hard because the board probably wants more money than Musk is willing to pay, and also because there seem to be strategic and personal disagreements between Musk and the board that might make friendly negotiations difficult. ‘I am not playing the back-and-forth game,’ Musk said in his initial proposal; ‘I have moved straight to the end.’ That’s an annoying way to start negotiations.

His other option is to pressure the board into dropping the pill, and the classic way to do that is with a tender offer plus a proxy fight, as we discussed yesterday:

1. Musk can launch a tender offer to buy all of Twitter's stock for $54.20 in cash. (Or, of course, some higher number.) The tender offer is a public, binding document filed with the SEC, open to all shareholders, and it will be full of disclosures about his plans and, in particular, his financing. Shareholders will be able to read it and see if he has the money. If it looks like he does, then they will be able to decide if $54.20 is a good enough price. If they think it is, they will be able to tender into his offer, submitting their shares for purchase. He won’t be able to buy them, though, because of the poison pill; the tender offer will be contingent on getting rid of the pill. But if like 90% of shareholders tender into his offer, then that is an important public-relations victory; he can go to the board and say “your shareholders want this deal, let them take it.” And then the board might agree and get rid of the pill, and then the tender offer can close and he can buy the shares.

2. Meanwhile, he can also try to get shareholders to vote their shares in a way that gets rid of the pill. Classically, the way to do this is to run a proxy fight to kick out the existing directors and replace them with Musk’s chosen directors, who would get rid of the pill and let him close his deal. Musk can’t really do that here, because of Twitter’s corporate structure, but he can run some sort of informal symbolic proxy fight where he urges Twitter’s shareholders to vote against the directors who are up for election in May, or where he urges them to vote to declassify Twitter’s board so it’s easier to kick the directors out in the future. If 90% of shareholders vote with him for these things, that’s another sign to the board that the shareholders want his deal and should be allowed to take it.

These things do not work automatically; even if 90% of shareholders tendered into Musk’s offer and voted with him at the annual meeting, the board could still tell him to buzz off. It could easily do that if it found another bidder willing to pay a higher price, but it could also legally do that even without a higher bid; the law tends to defer to the board’s business judgment about whether or not to accept a merger offer. But most of the time directors care about what their shareholders think, and if all the shareholders want Musk’s $54.20 then it’s embarrassing for the board not to give it to them.” [1]

TL; DR The poison pill forces Musk to negotiate with the Board.

[1] https://www.bloomberg.com/opinion/articles/2022-04-20/elon-c...

https://i.kym-cdn.com/entries/icons/mobile/000/037/756/tumbl...

I don't think you can just "take a poison pill" as a board.

The board are required to act in shareholders best interests. Taking poison pills is not usually in their interest. So you have to do it before their are a lot of shareholders (while you're still privately held) or you need a very good excuse. Doing it during a takeover is especially questionable. So the board would open themselves up to personal liability...

"At the Temple of the Seven-Handed Sek a hasty convocation of priests and ritual heart-transplant artisans agreed that the hundred-span-high statue of Sek was altogether too holy to be made into a magic picture, but a payment of two rhinu left them astoundedly agreeing that perhaps He wasn’t as holy as all that."

— Terry Pratchett, the Colour of Magic

The poison pill is the name of a corporate strategy that prevents Elon from just buying 50% of the shares in the stock market and doing whatever he wants. It doesn't mean the same thing as the board saying they would rather swallow poison than deal with Musk.

Therefore, the board engaging with his bid to buy twitter, and the two of them only negotiating that way, was the goal. So it's not a 180.

The board was originally hesitant to engage because even Elon Musk could have a lot of trouble raising $44 billion in cash. They didn't want to agree to a deal that didn't go through (like trying to buy a house without cash or preapproval). He seems to have secured loans to actually pay for Twitter, so now they are seriously engaging.

I think it was more than just they didn't believe Elon had trouble raising the cash. They liked being in control of Twitter and getting easy money as board members, and didn't realise that they can get personally liable for billions of dollars of loss for shareholders and go to court for years if they don't at least consider the offer and seriously evaluate whether the offer is worth taking for Twitter shareholders or not.

> didn't realise that they can get personally liable for billions of dollars of loss for shareholders and go to court for years if they don't at least consider the offer

It is ludicrous to believe that, even if this were true BEFORE the Musk bid came in, they were not consulting with corporate counsel AFTER and in conjunction with issuing the poison pill.

As others have said, it is frequently used as a negotiating tactic and will usually pop up somewhere along the way in any unsolicited takeover situation. Just like the simple act of saying "no" is often a negotiating tactic and not a true statement of someone's unwavering intent.

My read on it is that the shareholders didn’t want Musk controlling the company (owning 51%) and dragging them along with him. Being the absurdly rich person he is, he’d likely not care too much about how service changes would affect the stock price.

However they are quite happy to let Musk buy all of them out (owning 100%) at a reasonable price then let him do whatever marketshare-tanking moves he wishes. They don’t actually care about the fate of the company, they just don’t want to lose money.

The board actually held a pretty minimal % of the company, I would not read anything into the average shareholder's view from the board's position.

Elon's next move was a tender offer which put the issue in front of shareholders for an up/down vote on a full buyout, which would sidestep any board poison pil.

But owning 100 % was Musk's offer all along.

Leaving the option of gaining control via 51% hostile takeover would essentially be a ~50% discount for Elon. If your goal is to sell at the highest price you don't want to count on someones word or intentions.

Plus even if Elon really wants all 100% for reasons, the bank providing funding would certainly want him to consider any cheaper options since it's (nearly) the same gain for them but less risk to finance buying 51% vs 100%.

Yes, this has also confused me. What is so different now than 10 days ago?

Musk could have screwed the other shareholders by buying 51% and leaving it at that.

Hostile takeovers haven’t been common for a while, and so twitter was unprepared when one started.

Good analysis from Matt Levine for those who are interested:https://www.bloomberg.com/opinion/authors/ARbTQlRLRjE/matthe...

Musk's offer 10 days ago didn't have financing secured. Today's offer does.

Nothing is different. This is not a hostile takeover

… any more.

There was nothing stopping him from increasing his share while the board was deliberating. He could have used that tactic to increase pressure. The poison pill clause meant that the board was free to take whatever decision they wanted in the timeframe they deemed fit.

My understanding is they changed their position when Musk proved that he could come up with the funds (previously he was unsure)

The board probably got a preview of Thus's quarterly call. Everyone then decided poison pill is not worth it :)

An open question to those advocating for poison pills as a mechanism for existing shareholders to exercise control - why don't companies have permanent poison pills?

The fact that they are enacted only in certain scenarios to me is the indicator that they are hostile and discriminatory.

The poison pill was likely a defensive manuever to allow them time to evaluate their options.

The thought was the poison pill was to give them time to mull the offer over, nothing more.

A lot of people are about to find out that a lot of things that "were said" are, at best, untruths, if not lies or outright gaslighting.

For the first time in a long time I am slightly optimistic about the future.

Deals like this are all about leverage. Who has the power?

The poison pill would force Musk to be a "good actor" in the negotiations. You want negotiations like this to be friendly and not become a hostile takeover.

Ummm. I think Elon had the leverage I'm afraid.

He had DeSantis in florida threatening twitter as well.

Twitter didn't get him to budge on price (unusual actually in these deals).

Elon had other options other than being a "good actor". He did a take it or leave it deal. They took it, through gritted teeth it sounds like. I don't think the negotiations were "friendly".

> Last week it was said that Twitter's directors will take a poison pill instead of selling Twitter to Elon Musk.

No, it wasn't. What they did was change the governance rules to create a poison pill to minimize the possibility of a hostile takeover. Musk's offer was an offer made "to" the board, it wasn't an attempt to actually buy >50% of the company on the open market. In point of fact, "true" hostile takeovers are pretty much impossible owing to exactly this ability of boards of directors to allocate new shares (though the details vary between companies, some have limited rulemaking, some have very large individual shareholders who might act in concert, etc...).

This kind of stuff is just general prudence on the part of the board when it looks like a takeover attempt might be in progress. It doesn't constrain their ability to negotiate on behalf of all the shareholders.

https://www.youtube.com/watch?v=ETxmCCsMoD0

It was a choice. After talking to Musk, the board decided to take the money and not trigger the poison pill. That's all.

They have fiduciary obligation to take Elon Musk offer otherwise they can get sued by their Shareholders. Listen to this episode of the all in podcast to understand more: https://www.youtube.com/watch?v=9Suaj_0wKV0

Twitter's board didn't know what it meant...

There's nothing to poison. The board wants this.

WSJ has an article about it this morning:

https://www.wsj.com/articles/how-elon-musk-won-twitter-11650...

freelink: https://www.wsj.com/articles/how-elon-musk-won-twitter-11650...

tldr:

- Making an offer without financing was a 4-D chess negotiating tactic

- Nobody else stepped in to buy it

- Musk was lining up support from other top shareholders

- Twitter's bankers told them it was a good deal

To my understanding, the Twitter Board did not own significant shares of the company. Having next to 0 ownership put them in the position of having nothing to gain by refusing to sell Twitter and much to lose in litigation and possibly SEC fines for violating their primary Fiduciary Duty of putting shareholder interests first. Musk offered more for each share than it was worth. Welcome to the world of publicly-traded capitalism.

Anyway, I know the pundits are putting out face-savey type narrative. From my armchair over here, I’m seeing that the board had no choice but to sell.

Matt Levine has been talking about this in most of his recent newsletters. Today's includes a play by play overview of the recent moves by Musk and the board along with explanation of why these steps happen the way they do: https://www.bloomberg.com/opinion/articles/2022-04-25/elon-c...

They will still, don’t worry.

When I was working in eBay the CEO said: "we will never split paypal". 2 weeks later the split was announced.

money

What changed is that Elon Musk secured funding, making his offer much more credible and forcing the board to reconsider. The poison pill is still there for now but the board can remove it as easily as they added it.

The poison pill can be used by the board of directors in case of a "hostile" takeover of the company.

In the case of a non "hostile" takeover, meaning the board approves the takeover price there is no poison pill to be used.

I don't have to know, to know: $$$.

can someone explain why you'd spend $210/share rather than just buy on the open market at ~$50/share now? Are the $210 shares better in some way? Why would the $210 price double?

If I had to guess it was probably 8 shares total for the price of 4.

Who is buying shares at $210?

It's a bit confusing; it's not $210 a share, but that was the exercise price for the poison pill bonus shares.

https://twitter.com/matt_levine/status/1516047634812833799

so if they buy it at $210, but can sell it at $420? who buys it at $420? Twitter?

They would've had the right to purchase $420 worth of stock for $210.

Functionally, a stock split for everyone but Musk. Hence, poison pill.

For a startup-oriented discussion place, it's shocking how little users know about how mergers/acquisitions/takeovers actually occur in the market.

Don't they teach this stuff anymore? I had to learn this in college, many years ago.

Of course, it was a little less likely for eccentric billionaires to just "shop" in the market like this for ultra-large corporations. Still. We at least knew how the processes worked.

> I had to learn this in college, many years ago.

I majored in Computer Science and Physics. Which of these disciplines would mergers and acquisitions have been in? Should my algorithms class taught us about diluted stock and RSUs vs ISOs? Does my quantum mechanics professor have a unit on hostile takeovers?

I guess that'd be astrophysics: Two large piles of money circling each other, causing distant ripples on the stock market.

I took a microeconomics course and a macroeconomics course in college. Mergers/acquisitions may have been mentioned briefly, but they weren't a point of study. Microeconomics focused on why individual entities make decisions, and macroeconomics covered stuff like why we have currency, why is inflation useful and how the Fed manages it, etc.

In my decade on HN I've seen a lot about funding, IPOs, and acquisitions of private companies, but very little about hostile takeover of public companies.

Where are you expecting people to have developed an incidental background knowledge on deploying / overcoming poison pills?

We all have different backgrounds and different interests, you know.

Maybe you can share your knowledge, so those of us who are not dealing with mergers/acquisitions/takeovers can learn something?

You'd be surprised how many people active in the M&A market don't know. For instance, I regularly get glazed over eyes when I ask parties to sign a letter of non-reliance.

Hostile takeovers were much more common in the past as well.

Having zero knowledge of it, I would say that, since a poison pill is merely an option for existing shareholders to buy more shares, if they don't get enough takers for that option, then there's no news to print and no offer to compete with Elon's.

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