Twitter Board Adopts Poison Pill Measure in Response to Elon Musk's Offer as New Challenger Emerges
Twitter fights back!
In an attempt to fend off Elon Musk's takeover bid, the Twitter board adopted a "poison pill" measure on Friday.
Hoping to maintain its independence, Twitter's board of directors executed a limited duration shareholder rights plan, also known as the poison pill to beat back Musk's unwelcome $43 billion "best and final" offer.
The poison pill measure would dilute anyone having a stake in the company of more than 15% by selling more shares to other shareholders at a discount. The measure will be in place until April 14, 2023.
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New Buyout Firm Challenges Musk's $43 Billion Bid
In a report of The New York Post on Thursday, Thoma Bravo, a technology-focused private equity firm, was considering a bid for Twitter.
Thoma Bravo had more than $103 billion in assets under management as of the end of December. People familiar with the matter said that it is exploring the possibility of putting together a bid for Twitter.
At present, there is no word yet as to how much Thoma Bravo would be prepared to offer. Reuters reported that there is no certainty yet that such a rival bid will materialize according to sources that asked not to be identified because the matter is confidential.
The interest of Thoma Bravo in Twitter raises fear of more private equity firms vying for the social media giant. According to the data provider Pregin, the global private equity industry is sitting on about $1.8 trillion in dry powder.
Looking closely at the scenario, it is likely possible for a private equity firm to partner with Musk's bid rather than challenge him. This would boost Musk's current bid. However, some private equity firms are apprehensive about teaming up with him because of his criticism on Twitter's reliance on advertising for most of its revenue. This is because a strong cash flow makes financing a leveraged buyout much easier.
With a net worth of $265 billion according to Forbes, Musk is the world's richest person. However, he has drawn a line on how much he is willing to pay.
On Wednesday, Musk informed Twitter that his "best and final offer" is locked at a $54.20-per-share all-cash bid. He added that would reconsider his position as a Twitter shareholder if his offer was rejected. Musk owns more than 9% of Twitter.
Why Twitter Needs to Swallow the 'Poison Pill'
Twitter's annual cash flow is close to $700 million and it has more than $6 billion of cash on its balance sheet. This provides some comfort to banks considering whether they should provide debt for a deal.
However, Twitter has to enact a flip-in poison pill strategy to prevent Musk's take over.
The flip-in strategy 'poison pill' allows current shareholders, to purchase additional shares at a discount, which results in immediate profits for shareholders and a diluted ownership stake for the acquirer, making the deal less appealing.
In a press release of the Twitter board, they said that by enacting the 'poison pill' the likelihood that any entity, person or group that 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 will be reduced.
