On Saturday, Elon Musk tweeted: “🎶Love Me Tender 🎶.” It wasn't an Elvis reference. On Monday, Twitter filed its plans for a poison pill defense with the SEC, a move that would head off a potential tender offer from Musk or other parties.
Musk had offered to buy the company at $54.20 a share last week in a negotiation with the board that went nowhere, and officially became hostile when the board rejected the offer. He's hinted in recent tweets that he might go directly to shareholders with a tender offer.
Twitter had announced its intention to set up the defense Friday, with details forthcoming. The plan goes into effect at the close of business on April 25. Should any shareholder purchase more than 14.9% of the company by then, the board will offer existing shareholders — but not the party accumulating the shares — special rights.
The mechanics of the plan are similar to most poison pills, with the goal being to dilute the stake that a hostile party owns by issuing new shares. Shareholders will be able to exercise the rights to purchase a thousandth of a share of preferred stock for $210. That price, along with the current market price, forms the basis for a calculation of how many shares of common stock shareholders will receive. The "acquiring person" — the party accumulating a stake of 15% or more — isn't eligible. The bottom line is that Twitter can flood the market with newly issued shares.
The exercise price in a poison pill is typically set high to discourage hostile offers. It's common for the price to be set at a multiple of two or three times the current market price. By that standard, $210 is higher than usual.
But $210 is also half of $420, which might be a symbolic gesture by the board. The $54.20-a-share price in his Twitter offer seemed to call back to the time Musk proposed taking Tesla at $420 a share, a number that's an allusion to weed culture. It probably feels good to stick it to the guy who's trying to buy your company.
Musk hasn't launched a tender offer yet, but if he were to do so with the plan in place, shareholders could in theory exercise their rights to buy shares cheaply and unload them on him at the designated price, making a purchase economically unfeasible.