What Is A Poison Pill? | Simply Explained

What is a Poison Pill and how is it being used against Elon Musk in his bid to take over Twitter? Here is the simple explanation.

A poison pill is a strategic defense maneuver used to prevent hostile takeovers from bidding parties. Formally known as a "shareholder rights plan", it aims to dilute the acquirers stake by offering heavy discounts on shares. This makes a hostile takeover incredibly expensive and unfavorable.

Introduced in the 1980's to prevent hostile takeovers, it has been used not only as a deterrent, but also as a means to buy a company time to plan, as well as potentially negotiate with the acquirer.

Elon Musk has accumulated north of a 9% stake in Twitter and has recently made headlines by submitting to the SEC his formal intentions to purchase all outstanding shares of Twitter at $54.20 per share. This roughly translates to a $43 billion dollar valuation.

After rejecting a seat on the board, Elon Musk has also stated that his offer to purchase 100% of twitter is both his best and final offer. This leaves no room for negotiation, however is an incredibly generous premium to what Elon Musk paid when he initially bought into Twitter stock in January of 2022.

Given the fiduciary responsibilities of the board of Twitter, rejecting such an offer could upset shareholders and other investors alike. Thus, a poison pill has been introduced in order to mitigate any takeovers, and potentially incentivize Elon Musk to consider negotiation - as a forced takeover in spite of the poison pill would be very costly.

#TwitterTakeover #ElonMusk #PoisonPill

Disclaimer: This is NOT financial advice.

Видео What Is A Poison Pill? | Simply Explained канала Sam Saffa