News

Twitter Using ‘Poison Pill’ Defence to Stop Elon Musk from Buying It Over

2022-04-17 , 5:45 pm

At present, Elon Musk has bought 9.1% of Twitter Inc.’s stocks, which cost him approximately USD$2.6 billion.

Elon Musk is known as the richest man in the world, the CEO of Tesla and SpaceX, and a brilliant entrepreneur, though his investments can feel like a coin flip at times, where his decisions are either a stroke of genius with its loaded and long-term financial returns, or just pure madness and fraudulent spending, like how he decided that sending a car to the moon was a good idea.

As of right now, economists and analysts are still wavering between whether Musk is serious about taking over Twitter with a USD$43 billion offer, or he’s just trolling because he finds it amusing.

Honestly, with the persona he’s built for himself, it’s really hard to tell.

Defensive Strategy Poison Pill

Regardless of whether Elon Musk is serious about doing a hostile takeover of Twitter, then turning the company from public to private, the board of directors and its shareholders aren’t in the position to treat it as a joke.

See, it wouldn’t be impossible for Musk to buyout Twitter: he already spent USD$2.6 billion to acquire 9.2% of the company’s shares, spending an eighth of the money he earned from selling USD$16 billion of Tesla’s stocks.

His USD$43 billion offer is just a fraction of his USD$250 billion net worth, and even if the bid was raised higher, he is in the financial position to liquidate his assets in Tesla and SpaceX to gain the appropriate funds for acquisition or find an equity partner to share the burden of the cost.

Whether it’s a smart decision can be debated later.

Hence, Twitter’s board of directors has no choice but to respond, in hopes that it will dissuade his decision or drag him to the negotiating table to sweeten up the deal.

The term “poison pill” originates from a time of war and espionage, where agents would carry around toxic pills around to be ingested to avoid capture.

In corporate finance, a poison pill strategy is typically designed to make a company less palatable by making shares more expensive, to discourage a potential acquirer from pursuing a hostile takeover.

Although there are different types of poison pill strategies, the tactic that is usually deployed is the flip-in provision, wherein the company will flood the market with shares and allow its existing shareholders—excluding the active acquirer—to buy the shares at a discounted price.

It’s a double-edged sword; the acquirer’s equity might have been diluted, but the shareholders are equally less powerful since the value of their shares have dropped, although they are given the concentrated power of their discounted shares.

If anything, the poison pill strategy is a short-term plan and it cannot be sustained for long, which has been proven by Twitter announcing that they will only be sustaining the strategy for a year, and it will be implemented once Elon Musk hits a certain threshold of shares owned.

Why Does Elon Musk Want to Buy Twitter?

Simply put, there are four reasons why Elon Musk wants to acquire Twitter.

You can be the judge of whether the reasons warrant the effort though.

For The Freedom of Speech

For one, Musk believes that Twitter has an “extraordinary potential” that he wishes to unlock, and he feels that the current moderation that Twitter employs against misinformation, hate crime, or extremely controversial views could be eased, or completely removed.

Bans should also be used sparingly.

He’s a strong proponent of the First Amendment in the United States Constitution. However, he seems to fail to understand that the First Amendment only applies to government censoring an individual’s right to speech.

Any website or social platform, on the other hand, are governed by a different set of laws.

Namely, Section 230(c)(2), the “Good Samaritan” law which protects computer services from any civil liability for the posts or content that its users make or share, while giving the platforms the ability to moderate their website however they please as long as it’s done in good faith.

In a tweet, Elon Musk wrote, “Given that Twitter serves as the de facto public town square, failing to adhere to free speech principles fundamentally undermines democracy. What should be done?”

In essence, he believes that regardless how controversial a view is, it has the right to exist on Twitter.

This might just be spite talking though, since his tweet about how “children are immune to COVID-19” had been flagged for misinformation before.

He also acknowledges that Twitter’s monetary value lies more in its political sway, as seen by how influential figures like Donald Trump or Alex Jones have used Twitter as their main platform to successfully spread their conservative and nationalist beliefs, and gather a huge following.

When they were permanently banned from Twitter, much of the clout that they accumulated scattered.

Twitter might be a cesspit at times, but it’s undeniable that it has a lot of influence, 280 characters at a time.

Implementing an Edit Button

Secondly, there are some changes that he wants Twitter to implement, like an edit button for instance.

For a long time, Twitter users have been asking for the edit function for typos and other problems.

On 4 April, Musk hosted a poll on Twitter, asking his 82 million followers if they “want an edit button”.

Nearly 4.5 million votes were cast, with a 73.6% majority voting for “yes”.

Do you want an edit button?

— Elon Musk (@elonmusk) April 5, 2022

From Twitter’s perspective, the reason why they haven’t implemented an edit button was mostly because they wanted to stick to their old roots.

You see, Twitter first started out as an SMS text message service.

Twitter co-founder Jack Dorsey explained in an interview that the company wanted to stay true to the concept that a message sent can’t be taken back or altered.

However, it doesn’t mean that the option is completely off the table.

In the $3 per month subscription plan called Twitter Blue that was recently rolled out, one of the tools it provided was the ability to undo a tweet. Therefore, it’s definitely possible to implement it, and it might already be in the works.

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Pursuing an Open-Source Algorithm

Elon Musk may be an amusing troll online, but it’s undeniable that he is in touch with the concerns of Twitter users, or perhaps it’s something he personally feels since he’s an avid user himself.

Many social media users have complained that the learning algorithms that develop and cater to their tastes often control their lives, thus enticing them to spend more time on Twitter, Facebook, YouTube, etc.

Some Twitter users voiced that they prefer to see tweets in chronological order, which Twitter complied with, giving the users a choice between a catered or chronological feed in the settings.

Musk suggested that Twitter should make its algorithm open source, which would mean that it would be freely available and alterable.

However, he doesn’t go into detail what that change would entail, or how it would benefit a user’s experience on the platform.

Combatting Cryptocurrency Scams

Perhaps one of the biggest driving forces for Musk’s decision to rile up Twitter’s board of directors are cryptocurrency scams.

Many scammers have impersonated Musk, using his legitimate identity to swindle people into giving away their cryptocurrency.

In 2020, Musk’s account was one of the high-profile Twitter accounts that were hacked to forward a bitcoin scam.

In Jan 2022, Musk criticised Twitter for spending on products like profile pictures that showcase Non-Fungible Tokens (NFT), digital assets verified on a blockchain, rather than fighting crypto spam bots that appear in almost every thread.

To give a measure of how much Musk hates crypto scam bots, he called them the “single most annoying problem” on Twitter, and that’s with the existence of antis, stans, and other kinds of bots being taken into account.

Trolling Tactic or Serious Investment?

In view of the changes that Elon Musk wants, it’s important to consider this question:

Does Elon Musk genuinely want to takeover Twitter, or is it simply a ploy to force Twitter’s hands in getting the changes he wants, while using his large following and fortune to make his threat seem legitimate?

If Elon Musk is serious, then there are multiple ways he can manoeuvre around the poison pill strategy.

He could sue Twitter for pulling the poison pill strategy in a US state that deems the strategy illegal, and he definitely doesn’t lack the funds to hire the best lawyer team out there.

He can start a proxy war, using his bloc of influence to convince retail investors to vote out some directors and place his own sycophants who will do his bidding.

And that’s not considering the fact that he’s the noisiest Twitter user who is perfectly capable of writing tweets to frame his dissenters in a negative light, which will gain a lot of engagement and blind support.

Sure, Twitter could argue that not allowing Musk to takeover Twitter is in the interest of “maximising Twitter’s long-term value” and the current board of directors is more than competent, but there will be doubters either way.

Even if Twitter prevails in court and corporate finance, thus forcing Musk to retract his offer, Musk will probably choose to quit Twitter.

Twitter will lose in that scenario too, because Elon Musk has one of the biggest presences on Twitter. Without him, the engagement levels and traffic flow will drop, which will have a bad impact on their stock prices.

Basically, there’s no winning against Elon Musk, especially when he doesn’t really have much to lose here besides his money.

Unless, of course, the poison pill strategy is really to pull Elon Musk to the negotiating table to get a better deal out of the acquisition.

Which brings us to the next question:

Is it worth it for Musk to takeover Twitter?

Jason Goldman, a personage on Twitter’s founding team, can’t help but admit that Twitter “has always suffered more than its fair share of dysfunction”.

It wouldn’t even be far-fetched to call Twitter one of the most powerful trolling weapons, which Elon Musk has wielded masterfully.

But the problem with acquiring Twitter is that all that dysfunction and problems that plague Twitter— they will become Elon Musk’s problems instead.

The thing is, Elon Musk has the shares, influence, and fortune that practically hands him the opportunity to have a meeting with the Twitter management any time he wants.

They are at his beck and call, they will wait on him by the hand and foot.

He had a seat in Twitter’s board of directors as their largest shareholder, but he chose to abandon it.

If you wanted the company, you would ideally want a seat where you can influence their decisions, or at least know what they’re planning for the future.

As a Bloomberg writer succinctly phrases it, “If he buys Twitter he has to make decisions; Twitter is his problem. If owns 9% of Twitter he can just troll; he is Twitter’s problem.”

Which means if he doesn’t takeover, he can speak and act as childishly as he likes, without impunity, and yet with enough hold over Twitter to actually force them to make changes if he really wants them to come into fruition.

Moreover, if Musk owns more than 10% of Twitter’s shares, he will be subjected to stricter limits under US security laws, which would affect his ability to actively trade the stock, or buying and selling it whenever he feels like it.

Upon taking a step back and gazing at the larger picture, Musk doesn’t really benefit much from taking over Twitter.

In the end, it’s totally possible that it’s a whole ruse to make Twitter do something about the things that displease him.

It’s in his modus operandi too.