Twitter Downgraded to ‘Sell’ as it Considers ‘Poison Pill’ Against Musk’s Hostile Takeover

Mandatory Credit: Photo by CHRISTIAN MARQUARDT/POOL/EPA-EFE/Shutterstock (12861617t)Tesla CEO Elon Musk (L) and German Chancellor Olaf Scholz (R) at the opening day of the Tesla 'Gigafactory' in Gruenheide near Berlin, Germany, 22 March 2022.
CHRISTIAN MARQUARDT/POOL/EPA-EFE/Shutterstock / CHRISTIAN MARQUARDT/POOL/EPA-EFE/Shutterstock

Will he or won’t he? Mere hours after offering to buy Twitter for $54.20 per share in cash, Elon Musk said at a TED talk that he is “not sure” he’ll be able to buy the company and hinted at “a plan B” if the board refuses the offer. And now, Twitter is reportedly considering a so-called “poison pill” — a shareholders’ right plan — to counter his offer, according to Bloomberg.

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Twitter’s shares were up 3.5% in pre-market trading April 15.

On April 14 and in yet another twist in the Musk-Twitter saga, the richest man on the planet offered to buy Twitter with what he said was “a 54% premium over the day before I began investing in Twitter and a 38% premium over the day before my investment was publicly announced,” according to a note included in a filing with the Securities and Exchange Commission.

Twitter Inc.’s board is considering adopting a measure that would protect the company from hostile acquisition bids, according to people with knowledge of the matter, following billionaire Elon Musk’s unwelcome offer to take the company private.

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Bloomberg, citing people familiar with the matter, reported on April 15 that Twitter is weighing its option against the hostile takeover, one option being the poison pill, the other saying that the option is too low.

The poison pill technique is when the target company seeks to make itself less desirable to potential acquirers or soften the blow of a hostile takeover. As often is the case in hostile acquisitions, the acquiring company will employ abusive takeover tactics, or use its dominant position to put the target company in a very bad position. In these cases, poison pills may be utilized to force the acquirer into a position to negotiate, instead of simply forcing acquisition on the target, according to the Corporate Finance Institute.

In what looks increasingly like the “soap opera” ending some analysts had predicted, Musk also had a Twitter face-off with Saudi Arabia’s Prince Alwaleed bin Talal, another large Twitter shareholder, about the takeover.  

The Saudi Prince, along with his Kingdom Holding Company, voiced their opposition to the takeover.

“I don’t believe that the proposed offer by @elonmusk ($54.20) comes close to the intrinsic value of @Twitter given its growth prospects. Being one of the largest & long-term shareholders of Twitter, @Kingdom_KHC & I reject this offer,” Alwaleed tweeted.

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To which, Musk replied, “Interesting. Just two questions, if I may. How much of Twitter does the Kingdom own, directly & indirectly? What are the Kingdom’s views on journalistic freedom of speech?”

A slew of analysts have downgraded Twitter since the potential acquisition announcement, including Stifel analyst Mark Kelley, who downgraded the stock from Hold to Sell saying Musk created a “full blown Elon circus” around the social media company.

“We believe this sets a near-term ceiling on shares, detaches the company from fundamentals, and offers significant downside rise if Mr. Musk decides to abandon his offer or sell down his stake,” Kelley, who has a $39 price target, wrote in the note.

Separately, J.P. Morgan analyst Doug Anmuth wrote that he expects that the Twitter board will not accept Musk’s bid. He said the shares have significantly better upside if the social media company can execute on its own plan, Seeking Alpha reports.

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On April 14, Wedbush Securities analyst Dan Ives said that while Musk previously had a 9.2% stake before the filing “we believe this soap opera will end with Musk owning Twitter after this aggressive hostile takeover of the company,” according to a note sent to GOBankingRates.

Ives said that it would be hard for any other bidders or consortium to emerge, and the Twitter board will be likely forced to accept this bid and/or run an active process to sell Twitter.

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.

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