Ask HN: What happened to Twitter poison pill?
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.
302 comments
[ 4.5 ms ] story [ 271 ms ] thread2) 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.
[0] https://www.cnbc.com/2022/04/15/twitter-board-adopts-poison-...
In the case of a non "hostile" takeover, meaning the board approves the takeover price there is no poison pill to be used.
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.
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.
This poison pill does not strengthen Twitter board members' ownership because they don't own much Twitter stock.
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.
Wait, did I miss something on this? 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
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?
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.
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.
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.
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.
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...
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
https://twitter.com/matt_levine/status/1516047634812833799
Functionally, a stock split for everyone but Musk. Hence, poison pill.
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.
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.
1. https://www.reuters.com/business/exclusive-twitter-under-sha...
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...
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
> 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-...
This seems to be what happened.
> 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".
Yeah, probably as qiskit suggested, because the major shareholders told the board to pull their heads in and take the money.
At least that’s my understanding.
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.
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.
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.
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-...
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.
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.
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.
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.
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.
„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=...
4) as some of the comments have noted, earnings this quarter must also be underwhelming. The next earnings call is scheduled for Thursday.
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.
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.
Hostile takeovers haven’t been common for a while, and so twitter was unprepared when one started.
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%.
He secured financing for the deal.
They also probably wanted to buy time for a counter-offer to show up at a higher price.
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.
Maybe you can share your knowledge, so those of us who are not dealing with mergers/acquisitions/takeovers can learn something?
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?
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?