In an anticipated move, on April 15, Twitter’s board adopted a “poison pill” to counter Elon Musk’s hostile bid for the social media platform — a “rights plan” intended to “enable all shareholders to realize the full value of their investment in Twitter.”
But while Twitter’s move was expected, Musk’s reply is less so and some analysts have laid out the potential routes he now might take in what they call the “MMA battle for Twitter,” that will become “a game of high stakes poker.”
Replying to a tweet from Leon Black, managing partner of The Future Fund, on April 18 Musk tweeted, “Board salary will be $0 if my bid succeeds, so that’s ~$3M/year saved right there.”
Prior to today’s tweet, following the poison pill announcement, the richest man on the planet tweeted “Love Me Tender,” on April 16, leaving investors baffled.
Former Twitter CEO and board member Jack Dorsey, surprisingly also criticized the board, tweeting: “It’s consistently been the dysfunction of the company.”
As for Twitter, it explained in an April 15 press release that 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.”
This also does not prevent the board from engaging with parties or accepting an acquisition proposal if it believes it’s in the best interests of Twitter and its shareholders. The plan, which will expire on April 14, 2023, says that if any person or group acquires beneficial ownership of at least 15% of outstanding common stock without the Board’s approval other shareholders will be allowed to purchase additional shares at a significant discount.
“In essence, with Musk already owning 9.2% of Twitter this poison pill limits his ability to accumulate more than 14.9% of stock in the open market and essentially now gives the Board time to find another buyer for the company, likely running a formal strategic process behind the scenes. While we would expect the poison pill to be challenged in the Courts this will be an elongated process that will move to the background,” Wedbush Securities Analyst Dan Ives wrote in an April 17 note sent to GOBankingRates.
From here, Wedbush sees three potential scenarios for Musk.
The first would be to lay out his financing — such as debt/collateral of Tesla and/or SpaceX stock — as well as his strategy for Twitter in a presentation to the Board and shareholders. The second path is to find a strategic partner for the bid and increase it to the $60 threshold, which seems to be a more appropriate level in the eyes of many Twitter shareholders.
“The third option would be for Musk to hit the sell button and exit his position which we view as unlikely (at this point),” Ives wrote.
Wedbush Securities says that “the elephant in the room and the key variable to the whole Twitter situation” is whether a second bidder will emerge over the next week for the company from the private equity world and put more pressure on Musk to raise his bid.
In other Twitter/Musk news, CNBC reports that a court filing out April 15 said a judge ruled Tesla CEO Elon Musk knowingly made false statements when he tweeted about a take-private deal for the company in 2018.
In 2018, Musk tweeted that he planned to take the Tesla business private, but he maintained in a Feb. 1 court filing that his tweet was “entirely truthful” and that investors who claim the missive was fraudulent are wrong, as GOBankingRates previously reported.
Now, CNBC reports that the judge who is presiding in this matter had concluded that Musk knowingly made false statements about having funding secured when he tweeted. Damages from the shareholders’ class-action lawsuit could amount to billions of dollars that would be paid by Musk and Tesla to those who are members of the class.
Musk’s attorney said in a statement emailed to CNBC: “Nothing will ever change the truth which is that Elon Musk was considering taking Tesla private and could have — all that’s left some half-decade later is random plaintiffs’ lawyers trying to make a buck and others trying to block that truth from coming to light all to the detriment of free speech.”
A trial date is currently set for May 31, 2022, in a San Francisco federal court, but that could change, CNBC noted.
If the ruling could affect his bid for Twitter is currently unknown. However, the stock was down 1.7% in pre-market trading Monday, April 18.