What is a Poison Pill and can Elon Musk use it to his Advantage?
The ongoing Elon Musk vs Twitter scenario has plenty of pundits and news outlets weighing in (ANN included). One thing that was weighed in on last week was a poison pill. A question arises for those who aren’t professional financiers. What is a poison pill and can Elon Musk use it to his advantage?
Elon Musk is in for a bad time.
I’m not sure he’s prepared to take on a couple PhDs, a few MBAs, and a Baroness who use Twitter once a year (to reset their passwords) and collectively own 77 shares of the company. pic.twitter.com/sJmKwHbzVh
— Chris Bakke (@ChrisJBakke) April 16, 2022
According to Investopedia, “The term poison pill refers to a defense strategy used by a target firm to prevent or discourage a potential hostile takeover by an acquiring company. Potential targets use this tactic in order to make them look less attractive to the potential acquirer.”.
The way this is achieved is when members of the board of a company allow shareholders to buy shares of twitter at a lower price. Thus preventing one person in a company from engaging in a hostile takeover. If we also consider that Elon Musk is a shareholder in twitter. It stands to reason that he is also able to buy stocks at that lower price when said poison pill is activated. Unfortunately, Elon Musk cannot use this to his advantage as the poison pill excludes him from this practice.
The wrong partner on your board can literally make a billion dollars in value evaporate.
It is not the sole reason behind every startup failure but it is the true story a surprising percentage of the time.
— Garry Tan 陈嘉兴 (@garrytan) April 17, 2022