Twitter just adopted a poison pill in response to Elon’s $43B takeover bid.

Netflix did a similar maneuver in 2012 to thwart Carl Icahn.

Here’s how it played out:

First, what is a “poison pill”? It’s another name for “shareholder rights plan” and a corporate tactic invented during the wild leverage buyout (LBO) days of the 1980s.

The move allows corporate boards to defend against unwanted takeover attempts (and “protect” shareholders).

Anti-takeover defense includes:

— Issuing of preferred stocks w/ special rights to the board
— Control of shareholder meeting schedule
— Option for existing shareholders to buy more stock at a discount (thereby diluting stake of the party trying a hostile/unsolicited takeover)

In 2012, Netflix’s stock was struggling.

Famed corporate raider Carl Icahn built up a 9.98% position in Netflix and said the company should be acquired by MSFT or AMZN.

NFLX adopted a poison pill that would kick in if an individual acquired 10% (or Institutional acquired 20%).

Netflix management wasn’t interested in getting acquired.

And if Icahn triggered the poison pill, Netflix would flood the market with shares and dilute his stake.

This was Icahn’s response:

Icahn never did acquire more shares. Instead he started selling (just as Netflix’s stock price recovered).

In the end, Netflix cancelled the poison pill in 2013 (two years before it was supposed to expire).

Twitter’s current poison pill will go into effect if a shareholder acquires 15% or more of the company (the plan expires in April 2023).

Elon currently has 9.1%.

Here is what would happen if he crossed 15%:

Not sure what happens next, but def follow @TrungTPhan for other business breakdowns (including updates on this one).

Here’s one you might like: https://twitter.com/TrungTPhan/status/1437072332963532803

Also check out my newsletter: https://trungtphan.com/subscribe/ 

(Side note: here is Elon yesterday at TED saying he has a Plan B) https://twitter.com/heydave7/status/1514675952802017282

Sources

Twitter Poison Pill: http://prnewswire.com/news-releases/ …

Netflix 1: http://money.cnn.com/2012/11/05/tec …

Netflix 2: http://archive.canadianbusiness.com/business-news/ …

History of Poison Pill: http://business.time.com/2012/11/07/cor …

And if Elon’s takeover goes through https://twitter.com/TrungTPhan/status/1514620672076501000

Unlike Facebook or Snap, Twitter doesn’t have multiple classes of shares that gave its founders extra voting power.

Therefore, Twitter was more open to takeover attempts. And also why the company has a ton of “anti-takeover provisions”.

https://d18rn0p25nwr6d.cloudfront.net/CIK-0001418091/947c0c34-ca90-4099-b328-a6062adf110f.pdf

Received this note from @RomeenSheth on what a Plan B for Elon could look like:

Had some people ask: Yes, I own $TWTR. And yes, it’s not a lot. And Yes, I’d roll with @elonmusk on a proxy vote (or tender).