Can Elon Musk buy Twitter?  Here’s how a hostile takeover could work.

Can Elon Musk buy Twitter? Here’s how a hostile takeover could work.

In the first few months of 2022, billionaire Tesla CEO Elon Musk quietly spent more than $2.6 billion to buy back Twitter shares.

As a result, he now owns more than 9% of the company’s shares – and now he’s also fighting for the remaining 91%. Last week, in a letter to Twitter’s chairman of the board, he offered an additional $43 billion for the remaining shares.

Twitter’s board, however, had other plans: In a filing with the U.S. Securities and Exchange Commission, the board adopted a so-called “poison pill” defense, officially known as the “Shareholder Rights Agreement”.

The concept is used by public companies to avoid being acquired against their will, and it works by making the target company more expensive. The company issues new shares which are available to current shareholders, excluding Musk, which are worth twice the price they cost.

The result is that more discounted stocks flood the market, diluting an acquirer’s initial stake.

Although Twitter has yet to officially respond to Musk’s offer on Friday, he said, the poison pill drop marked the official end of the “friendly” takeover process.

So what is a “hostile takeover?”

Elon Musk's phone

Elon Musk using a smartphone.

Joe Skipper/Reuters


Officially, hostile takeovers begin when negotiations fail between an acquirer (Musk, in this case) and the board of a publicly traded company.

Microsoft’s $69 billion acquisition of Activision is a recent example of a friendly takeover, though it is still pending regulatory approval. Microsoft worked directly with Activision management and its board, which approved the terms of the deal before anything was officially announced.

In the case of Elon Musk and Twitter, the situation turned out very differently.

After revealing a significant stake in Twitter earlier this month, Musk was then appointed to the board – which he initially accepted before reneging on that acceptance a few days later. A few days later, Musk appealed to Twitter’s current board with a $43 billion offer to buy the company.

Along with the offer, Musk sent a letter to Twitter Chairman Bret Taylor in which Musk said the offer was his “best and last” offer.

“I don’t play the back and forth game. I went straight to the end,” Musk wrote in his letter to Taylor.

Twitter’s response was to file a shareholder rights agreement, which Musk in turn responded to this week: provide a total of approximately $46.5 billion” to buy Twitter. .

Beyond proving that Musk has the capital to afford Twitter, it allows him to use a classic hostile takeover tactic known as a “takeover bid.”

The “takeover bid” approach

Rather than dealing with the board, Musk can appeal directly to shareholders by offering them cash for their shares at a higher price than they are currently worth on the market. He repeatedly alluded to the use of a takeover bid by shy tweet the last days.

If that doesn’t work out, Musk has a few other potential tactics he could use that are classic hostile takeovers.

He could buy the remaining shares of Twitter that will be put up for sale over time, eventually raising enough to become the controlling shareholder (more than 50%) or to become a big enough shareholder to be able to make changes to the board of directors. administration.

This, and its variations, is known as a “creeping takeover bid”.

Another option: Musk could team up with other big Twitter shareholders, like the Vanguard Group, to elect the current board and replace it with members who support Musk’s takeover bid.

This tactic is known as “proxy fighting” and allows investors in a public company to use class action to force a company’s board to do something it resists doing.

So far, however, it appears Musk’s weapon of choice in his hostile takeover bid is a takeover bid. His initial offer to Twitter’s board was $54.20 per share, just under $6 more than the $48 per share Twitter was trading at Friday afternoon. It’s unclear if that offer will change if and when Musk appeals directly to Twitter shareholders.

Do you have any advice? Contact Insider Senior Correspondent Ben Gilbert via email (bgilbert@insider.com), or PM Twitter (@realbengilbert). We may keep sources anonymous. Use a non-professional device to reach out. PR pitches by email only, please.

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