Althouse: "Poison pills have been around for decades... Netflix adopted a poison pill in 2012 to stop [Carl] Icahn from buying up its shares. Papa John’s used one against..."

April 16, 2022

"Poison pills have been around for decades... Netflix adopted a poison pill in 2012 to stop [Carl] Icahn from buying up its shares. Papa John’s used one against..."

"... the pizza chain’s founder and chairman, John Schnatter, in 2018. Investors rarely try to get around a poison pill by buying shares beyond the threshold set by the company, according to securities experts. One said it would be 'financially ruinous,' even for Mr. Musk. But Mr. Musk, who is worth more than $250 billion... rarely abides by precedent.... Twitter is the 'de facto town square,' Mr. Musk said, adding that 'it’s really important that people have the reality and the perception that they are able to speak freely within the bounds of the law.... My strong intuitive sense is that having a public platform that is maximally trusted and broadly inclusive is extremely important to the future of civilization'...."

From "Twitter Counters a Musk Takeover With a Time-Tested Barrier/The company is intent on fending off the billionaire’s bid to buy it in a deal that could be worth more than $40 billion" (NYT).

The poison pill is that "if Mr. Musk bought more than 15 percent of the company, Twitter would flood the market with new stock that all shareholders except Mr. Musk could buy at a discounted price."

58 comments:

mezzrow said...: see: Twitter board members, fiduciary responsibility, personal liability, and opportunity litigation.

This is only the beginning of the beginning of this. The price of censorship just went up.; 4/16/22, 8:17 AM
David Begley said...: Apparently the new Musk plan is to line up some VCs and private equity funds and have them buy 14%. I like it. The shareholders will sell at that price.; 4/16/22, 8:25 AM
Sebastian said...: "My strong intuitive sense is that having a public platform that is maximally trusted and broadly inclusive is extremely important to the future of civilization'...."

His intuitive sense is correct. Of course, the implication of his intuitive sense is that it is extremely important to the future of civilization to resist prog hegemony. Controlling or at least changing Twitter is one step. Short of control, scoring points in the culture war is worth a few billion bucks.; 4/16/22, 8:36 AM
tim maguire said...: I’m surprised securities law would allow one investor to be excluded like that. But then, everything about the poison pill sounds like a violation of the board’s fiduciary duty in that it deliberately lowers the stock price and dilutes the holdings of all shareholders. (Issuing additional shares is common, but is usually a fundraising strategy intended go benefit current shareholders.); 4/16/22, 8:38 AM
TML said...: That quote of his is a pretty damned good one, actually. And he stated the issue very plainly.; 4/16/22, 8:43 AM
Robert Roy said...: I wonder if it's possible to buy the 15%,let all the angsty leftists snatch up the discounted stock, and then sell the whole chunk, crashing the value of the diluted stock. Possibly petty but I've been disgusted with Big Tech for a long time.; 4/16/22, 8:45 AM
Tom said...: He should buy enough to trigger the poison pill.

Btw, the Feds are now investigating him and the elite media has freaked out at the notion of mass free speech.

Doesn’t that tell us the state of our nation? That free speech is dead. That our media and elite control of government are working in coordination?

We also see the FBI plot to kidnap two governments (Michigan and Virginia) and find out the FBI has operatives imbedded in the Jan 6th crowd to encourage them to enter the Congress.

Biden just release 1.5 illegal immigrants into the country and he wants purple states to have unrestricted voting. And he wants Texas to be a blue state.

We don’t live in a free country any longer.; 4/16/22, 8:45 AM
Achilles said...: It is all over for the Regime but for the crying.

Everyone sees who the Biden Regime is and who the supporters of the Biden Regime are.

Only terrible people would support this.

You are going to be removed from power one way or another.; 4/16/22, 8:50 AM
Critter said...: This type of poison pill really is a shareholder rights plan that is designed to prevent an investor from acquiring enough shares at current market value to effectively take control of a company without paying shareholder the “control” premium that is warranted. The way around this 15% limit is for Musk to get 2 other investors to also acquire just under 15% ownership give the 3 parties 45% ownership at which point they could start a proxy fight to oust current directors in favor of a slate of directors selected by Musk. However, that is a nasty and prolonged approach that would ring lawsuits and. a protracted battle. A better option for Musk is to add an investor to his bid and raise the offer in response to competitive bids. Then it becomes a war to see how much each group is willing to pay for a company bleeding cash. Rumors abound of potential partners for Musk, including Peter Thiel and other PE groups. Will be interesting to see how this plays out. BTW, I don’t think the SEC or DOJ has much basis to attempt to block a deal with Musk. He owns no other communication assets.; 4/16/22, 8:51 AM
Butkus51 said...: Then Musk announces he will sell and ALL the shares will tank asap.; 4/16/22, 8:57 AM
rhhardin said...: Martin-Marietta and Bendix mutually took each other over in counter-hostile takeovers, producing an unprecedented legal standoff, now called a Pac-Man defense. I was hoping for something as good. A poison pill is old hat.; 4/16/22, 9:03 AM
Mike Sylwester said...: The poison pill is necessary because Musk would end Twitter's suspension of Babylon Bee.; 4/16/22, 9:05 AM
Original Mike said...: "if Mr. Musk bought more than 15 percent of the company, Twitter would flood the market with new stock that all shareholders except Mr. Musk could buy at a discounted price." ( emphasis added)

Kind of surprising that's legal.; 4/16/22, 9:08 AM
Jamie said...: Wow, this seems like the runaway inflammation reaction some unlucky few had to COVID.

Except that in terms of what Twitter says it is - as Musk said, kind of a de-facto town square - it's more like having a runaway inflammation reaction to food and water.; 4/16/22, 9:10 AM
Bruce Hayden said...: Not surprisingly, Zerohedge comes out on the other side from the left wing NYT: Musk Speaking To Co-Investors As Twitter Board Adopts "Poison Pill" To Thwart Hostile Takeover .

Among other possibilities, Musk is threatening to sue for a breach of fiduciary duty on the part of the board of directors. And, indeed, that is a serious question: why wouldn’t the poison pill be a breach of fiduciary duty on the part of the board of directors? After all, they are sacrificing the premium that Musk is offering to preserve the intellectual purity of the snowflake employees, for each and every current stockholder. It’s one thing when the stockholders impose a poison pill on themselves, but this was the board of directors essentially flushing Musk’s premium down the drain for ideological, and not financial, reasons (or, at least the board will be given the opportunity to prove, in an uphill battle, that they were operating in the best financial interest of the stockholders when they squandered Musk’s purchase premium for apparent ideological reasons).

Going down a level - a lot of the stock is owned by institutional investors, many of whom seem to have become subtly Woke over the last couple of years. But what about their own fiduciary responsibility to stock holders or pension beneficiaries if they back there Twitter board here, and as a result lose money for their investors or pensioners, for ideological reasons? Yes, they make Woke investing decisions all the time (like getting together to starve oil and gas firms of financing), but can they hide such a nakedly partisan, and financially adverse, move from their stockholders and pensioners?; 4/16/22, 9:11 AM
Browndog said...: "Time tested barrier"

The time is very short, and it's never really been tested. But ok, pretend it's a rock solid business practice that has endured the test of time.

I'll leave it to others to point out why "one of these things is not like the other".; 4/16/22, 9:18 AM
dbp said...: If this is a correct interpretation, it's hard to see how it could be legal. All common shares of a stock need to be treated equally. For instance, you cannot award dividends to some common shares and not to others.

"The poison pill is that "if Mr. Musk bought more than 15 percent of the company, Twitter would flood the market with new stock that all shareholders except Mr. Musk could buy at a discounted price.""

What could be done is share dilution: Sell one new share for each existing share. In theory, this shouldn't affect the price/share since the dilution of ownership is offset by capital inflow from selling new shares. But what happens is that Musk suddenly has a smaller fraction of a larger pie.; 4/16/22, 9:38 AM
Robert Marshall said...: I assume that Twitter is on solid legal ground in doing this, because they're not stupid, but how can the legality of doing this be justified? Shouldn't the presumption in a capitalist, free market economy be that the market rules, and if an investor like Musk wants to buy stock in a company, the company should have no control over that? It's between the investor and the existing shareholders, and the company should not be able to intervene. Doesn't seem right to me, diluting only one shareholder's ownership.; 4/16/22, 9:42 AM
Wince said...: What is being revealed as a "control premium" is the shadow price the establishment places on censorship over thought and debate.; 4/16/22, 10:02 AM
Fred Drinkwater said...: As a long time early-state investor, I EXPECT boards to screw over some investors in favor of others.
It's by far the biggest risk on the upside.
Sure, on the downside you can lose your entire investment.
Getting screwed out of a 10x upside hurts a LOT more, since those wins fund the whole exercise.; 4/16/22, 10:03 AM
Left Bank of the Charles said...: Netflix shares hit a low of $7.54 in 2012, but last closed at $341.13, so adopting the poison pill worked out very well for its shareholders. The stock market is down due to the global financial risks from the Russian invasion of Ukraine, which makes it hard to evaluate whether Elon Musk is offering any takeover premium for Twitter. The questions now: How much would Elon Musk have to up his offer to entice the Twitter board to withdraw the poison pill and will Musk be willing to offer that much?

While Musk could continue purchasing Twitter shares and suffer the dilution, it’s unlikely that would be cheaper than upping his offer to a level the Twitter board would accept.; 4/16/22, 10:15 AM
Douglas B. Levene said...: IMHO, the Delaware courts ran off the rails back in the 1980s when they held that poison pills did not violate the Delaware General Corporation Law ab initio. True, the issuance of a pill, and the continuing refusal to redeem it are subject to the board’s fiduciary duty to shareholders (note, that means shareholders, not “stakeholders”), but the courts rarely intervene even under the heightened scrutiny test for anti-takeover actions. Rarely isn’t never, though, and if Musk keeps his campaign going, and the board can’t come up with a financial alternative, the courts might eventually rule against the board and order the pill redeemed. That’s a long shot. A better path is to wage a proxy contest coupled with a promise to take the company private at $XXX /share. If Musk did that, the arbs and activist hedge funds would buy up Twitter shares and vote for Musk. It’s true that Twitter has a staggered board, but that’s unimportant. If he won a proxy contest for 1/3 of the board seats, the remaining directors would be unlikely to stick around to keep fighting a battle they would be certain to lose.; 4/16/22, 10:22 AM
Douglas B. Levene said...: @RobertMarshall: Alas, we now have 35 years of cases upholding poison pills. The Delaware courts decided that they did not want a free market for corporate control. Their reasoning was that giving boards the power to stop deals gives them leverage to negotiate a better price. This was the ex post fallacy. Yes, allowing boards to stop deals does result in some cases in shareholders getting a better price. But it ignores that ex ante, lots of deals never happen, and those shareholders never get bought out at a higher price.; 4/16/22, 10:27 AM
rhhardin said...: My investment strategy when my company was target of a contested hostile takeover was to sell into the market and not wait to see how it turned out. The partially increased market price is there for a reason.; 4/16/22, 10:28 AM
Michael K said...: Blogger Original Mike said...

"if Mr. Musk bought more than 15 percent of the company, Twitter would flood the market with new stock that all shareholders except Mr. Musk could buy at a discounted price." ( emphasis added)

Kind of surprising that's legal.

I would think he'd have a pretty good case suing the directors. They are acting like Theranos directors and that did not work out well for them.; 4/16/22, 10:30 AM
Browndog said...: BTW, I don’t think the SEC or DOJ has much basis to attempt to block a deal with Musk. He owns no other communication assets.

The SEC has already stated they have opened up and investigation into Musk. Rule of Law only applies to what the Rule of Men says it does in today's America.; 4/16/22, 10:35 AM
Chris Lopes said...: "While Musk could continue purchasing Twitter shares and suffer the dilution, it’s unlikely that would be cheaper than upping his offer to a level the Twitter board would accept."

The point of the poison pill in this case isn't to get a better price, it's to stop the deal entirely. They don't want Musk taking over and getting rid of them. They are willing to tank the stock to stop him. Musk's real choice is between dumping the stock now, or triggering the dilution and then dumping it. The first gives him a better profit. The second gives him the satisfaction of watching Twitter self destruct.; 4/16/22, 11:14 AM
Original Mike said...: "Musk's real choice is between dumping the stock now, or triggering the dilution and then dumping it. The first gives him a better profit. The second gives him the satisfaction of watching Twitter self destruct."

You can afford option 2, Elon. Do it.; 4/16/22, 11:20 AM
Marco the Lab said...: This comment has been removed by the author.; 4/16/22, 11:25 AM
Marco the Lab said...: Putin's poison pill position is crystal clear: "Why do we need a world without Russia?". Now that would surely stop Musk!; 4/16/22, 11:26 AM
Joe Smith said...: I'm no securities lawyer but this seems illegal to me.

I think people was talking about Musk getting a few more people to buy 14.9% of shares and work together...; 4/16/22, 11:29 AM
Andy said...: This reminds me of “The Fountainhead”.; 4/16/22, 11:44 AM
Joe Smith said...: 'Netflix shares hit a low of $7.54 in 2012, but last closed at $341.13, so adopting the poison pill worked out very well for its shareholders.'

Conclusion not supported by evidence.

Had Icahn bought the company, shares might be $1000 by now...; 4/16/22, 12:00 PM
Joe Smith said...: Twitter stock price (before this kerfuffle) is about the same as it was after its first day of trading.

What value has been created over the years by the current and past management teams?; 4/16/22, 12:03 PM
tim in vermont said...: The very fact that the deep state, remember them, began a DNC staffed infestigation immediately makes this a first amendment issue.; 4/16/22, 12:06 PM
Narayanan said...: Wince said...
What is being revealed as a "control premium" is the shadow price the establishment places on censorship over thought and debate.
=========
aren't the Board also saying current premium offered by Musk is not sufficiently = existing /control premium/; 4/16/22, 12:46 PM
mccullough said...: Musk should say that he’s considering starting a competing platform.; 4/16/22, 12:56 PM
Dude1394 said...: I think he should force buy the 14% force the poison pill and then sell the stock.; 4/16/22, 1:00 PM
MrEdd said...: I think that Musk is simply wrong as to the problem with Twitter. It is not censorship of tweets that are considered problematic. Even if those are not censored, they will invite the woke Twitter mobs to use the supposedly problematic tweets to get their authors fired, blacklisted from future employment, be labeled racist, homophopic, whatever phobic and people will still be afraid to post their true ideas. Bari Weiss interviewed Jonathan Haidt (sp?) recently about the power of Twitter to punish speech more than censor it. H
Haidt's recent article is spot on. Musk buying Twitter to stop censorship of "bad thought" is like handing pacifists daggers when they are threatened by vicious hordes carrying AR's. Inviting people to speak their minds no matter the consequences does NOT stop those consequences from happening. As long as government and business organizations think Twitter is the voice of the people AND the most vocal and organized Twitter mobs can frighten them, posting "bad thought" on Twitter is personal and familial suicide.; 4/16/22, 1:15 PM
BUMBLE BEE said...: It ain't over yet...
https://thebluestateconservative.com/2022/04/16/shocking-one-industry-insider-suggests-the-u-s-government-plays-a-huge-role-in-twitter/
Musk may have learned a lot as a super-user.; 4/16/22, 1:16 PM
Narayanan said...: Q: is TWITTER a Delaware Corporation ?

on their website home =======
Headquarters: San Francisco

Freedom of speech is a fundamental human right — but freedom to have that speech amplified by Twitter is not. Our rules exist to promote healthy conversations.

Healthy conversations = We’re working to make Twitter a safe place for free expression

so they consider themselves = megaphone or open mic day with bouncer at door!; 4/16/22, 1:20 PM
Mikey NTH said...: Is there anything preventing Musk from funding proxies to buy shares to buy later?; 4/16/22, 1:40 PM
Jupiter said...: Fascinating. But the whole thing is on hold until Monday.; 4/16/22, 2:27 PM
n.n said...: There is no mystery... To the board's credit, the day before pill is a moral choice.; 4/16/22, 3:40 PM
John henry said...: Twitter is a Delaware corporation

https://www.sec.gov/Archives/edgar/data/1418091/000119312513390321/d564001dex31.htm; 4/16/22, 3:46 PM
Bruce Hayden said...: “ Q: is TWITTER a Delaware Corporation ?”

“on their website home =======
“Headquarters: San Francisco”

Doesn’t matter. A large number of the biggest corporations in the country are registered in DE, and almost all of them have headquarters elsewhere. As Doug Levene pointed out - they do it because DE courts are extremely deferential to boards of directors - who, not coincidentally, were the ones moving the corporation’s charter to DE in the first place. The sort of poison pill utilized here, that fairly directly attacks, and is likely to deprive the shareholders the benefit of, Musk’s premium, would likely not fly in most of the states in this country - which is why so many publicly traded companies are chartered in DE, where it may be legal.; 4/16/22, 3:54 PM
Douglas B. Levene said...: @MikeyNTH: If the poison pill is competently drafted, then contracts to acquire proxies at a later date would count towards the 15% trigger.; 4/16/22, 3:58 PM
Douglas B. Levene said...: @Narayanan. Twitter, like most big public corporations in the US, is incorporated in Delaware. See https://s22.q4cdn.com/826641620/files/doc_financials/2021/ar/2022-Prelminary-Proxy.pdf.; 4/16/22, 4:00 PM
Maynard said...: This reminds me of “The Fountainhead”.

My wife and I were cautiously discussing Musk and Twitter. She is still a registered Democrat who has a sort of positive view of the MSM. However, I am making inroads when it comes to Free Speech and a few other hot button topics.

In talking about Musk, I said he reminds me of an Ayn Rand character. She readily agreed and hoped that his takeover will be successful. A small victory on the road to clear and independent thinking.; 4/16/22, 5:32 PM
Lem the artificially intelligent said...: A Reddit post claims to have a tweet response from Elon Musk.

Copy pasta to your browser 👉🏽 https://www.reddit.com/r/JoeRogan/comments/u4y8ap/they_would_rather_destroy_twitter_than_lose/?utm_source=share&utm_medium=ios_app&utm_name=iossmf; 4/16/22, 6:09 PM
Left Bank of the Charles said...: “Had Icahn bought [Netflix], shares might be $1000 by now...”

Which would have been great for Icahn, not for the people he forced to sell him their shares. The backside merger is an aspect of tender offers that is not often discussed. If the buyer acquires enough shares, the buyer can force a buyout of the remaining shares held by people who didn’t accept the buyer’s offer.; 4/16/22, 6:35 PM
realestateacct said...: Musk also has the option of dropping his offer and starting a competing site or acquiring or partnering with one of the competitors having widely exposed Twitter's commitment to gate keeping for the status quo.; 4/16/22, 6:51 PM
Joe Smith said...: LBoC...

My point was...Twitter has created ZERO value since the day of it's IPO other than to people who had shares before the IPO.

If were an employee with options, or a founder, then bully for you...you got rich.

If you're an average Joe buying stock for your golden years, you made a mistake.

They've been stuck in neutral all these years.

Everyone who bought a share of Twitter is poorer because of it.

Why not let Elon try to get the price up...which he's already done by offering a premium.

I'm not a stock expert (maybe you are), but I know zero growth when I see it...; 4/16/22, 7:03 PM
Narayanan said...: reports show that other than Jack Dorsey

the board members own 77 shares out of a total of 736,701,437 shares outstanding

they could be fronting for others; 4/16/22, 8:28 PM
Narayanan said...: reports show that other than Jack Dorsey

the board members own 77 shares out of a total of 736,701,437 shares outstanding

they could be fronting for others or Theranos level expertise; 4/16/22, 8:29 PM
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Bruce Hayden said...: “reports show that other than Jack Dorsey”
“the board members own 77 shares out of a total of 736,701,437 shares outstanding”

Which means that the only skin they have in the game is the money and spiffs they get from their sinecure of being on the board of directors. It’s no doubt easy work for a decent paycheck - maybe a half dozen meetings a year, and some phone calls. You mostly don’t get these jobs for what you know, but rather, who you know. There’s a lot of interlocking boards of directors, where the guy running company X puts the guy running company Y on his board, and in trade, the guy running company Y puts the guy in running company X on his board.

With 77 shares among all of them, and guaranteed that most, if not all, of the board are multimillionaires, if not far richer, they effectively have nothing to lose if Musk’s bid falls through, and the stock price never comes close to his asking price, contrasted to the millions who directly or indirectly own those 3/4 billion shares of outstanding stock. Nothing. No doubt, they are mostly a Woke crowd, which is why they jumped so quickly to oppose Musk. This is just another example of how the game is rigged, with the DE courts likely looking sideways when confronted by the poison pill enacted by these 77 share owners.; 4/17/22, 10:47 AM
Narayanan said...: This is just another example of how the game is rigged, with the DE courts likely looking sideways when confronted by the poison pill enacted by these 77 share owners....
=========
Q: on a challenge can the DE court sustain that the Board is performing its fiduciary responsibly?

will not that open a can of worms whoopass; 4/17/22, 11:15 AM