It’s a move to prevent Elon Musk from quickly taking over Twitter.
Twitter’s board of directors on 15 April announced the adoption of a limited-term shareholder rights plan to make it more difficult for Musk to buy the popular microblogging and social networking service company.
On 14 April, the Tesla and SpaceX CEO offered to acquire all of Twitter’s shares he does not own for $54.20 per share, valuing the company at $41.4 billion.
Twitter’s rights plan — a “poison pill” or tactic used by a company threatened with an unwelcome takeover bid to discourage the bidder — preserves the right for Twitter shareholders other than Musk to buy more shares of the company at a cheaper price to weaken Musk’s stake.
The provision takes effect if Musk (or any other investor) acquires more than 15 percent of the company’s shares.
Musk currently owns 9 percent of Twitter’s shares, which made him the largest shareholder, until he was eclipsed by the Vanguard Group.
The poison pill won’t totally prevent Musk’s bid, but it could make buying Twitter more expensive or force Musk to the negotiating table with the board.
Here’s the full text of Twitter’s announcement of its rights plan:
“Twitter, Inc. (NYSE: TWTR) announced that its Board of Directors has unanimously adopted a limited duration shareholder rights plan (the ‘Rights Plan’). The Board adopted the Rights Plan following an unsolicited, non-binding proposal to acquire Twitter.
“The Rights Plan is intended to enable all shareholders to realize the full value of their investment in Twitter. 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 Rights Plan does not prevent the Board from engaging with parties or accepting an acquisition proposal if the Board believes that it is in the best interests of Twitter and its shareholders.
“The Rights Plan is similar to other plans adopted by publicly held companies in comparable circumstances. Under the Rights Plan, the rights will become exercisable if an entity, person, or group acquires beneficial ownership of 15% or more of Twitter’s outstanding common stock in a transaction not approved by the Board. In the event that the rights become exercisable due to the triggering ownership threshold being crossed, each right will entitle its holder (other than the person, entity or group triggering the Rights Plan, whose rights will become void and will not be exercisable) to purchase, at the then-current exercise price, additional shares of common stock having a then-current market value of twice the exercise price of the right.
“The Rights Plan will expire on April 14, 2023.”