He hasn’t which is why he’s angling for a tender offer

Are you thinking a tender offer somehow overcomes the poison pill?

Yes, if he launches a tender the offer goes to the shareholders. He wouldn’t need to build a larger stake himself.

A tender offer is a means of building a large stake, so the poison pill would still be active. Therefore, he will not launch a tender offer.

I hesitate to speculate on what Musk will do specifically, but often in a poison pill situation a tender offer will be contingent on the removal of the poison pill. The point of the tender offer is not to buy the shares immediately, but to incentivize shareholders to put pressure on the board to remove the poison pill, then complete the tender offer it's removed.

Incorrect.

I don’t think this is correct.

It is correct. That is how a tender offer works.

From Matt Levine:

"Musk can launch a tender offer to buy all of Twitter's stock for $54.20 in cash. (Or, of course, some higher number.) The tender offer is a public, binding document filed with the SEC, open to all shareholders, and it will be full of disclosures about his plans and, in particular, his financing. Shareholders will be able to read it and see if he has the money. If it looks like he does, then they will be able to decide if $54.20 is a good enough price. If they think it is, they will be able to tender into his offer, submitting their shares for purchase. He won’t be able to buy them, though, because of the poison pill; the tender offer will be contingent on getting rid of the pill. But if like 90% of shareholders tender into his offer, then that is an important public-relations victory; he can go to the board and say “your shareholders want this deal, let them take it.” And then the board might agree and get rid of the pill, and then the tender offer can close and he can buy the shares."

I was wondering about this - what's to stop him from creating 3 permanently sealed South Dakota trusts, acquiring 14% in each, and combined with his personal share calling a vote and immediately rejecting the poison pill and firing the board?

IIRC Twitter already has rules about shareholder votes, and it couldn't happen until next year at the earliest. There's no provision for shareholders to call for a vote at any random time.

The lawyers thought about that the day poison pills were invented. It's in the very first lines of the shareholder rights agreement.

Wait what is a permanently sealed South Dakota trust? And how do I get one of those interesting sounding mechanisms.

Has the board formally rejected his offer yet? The poison pill only applies to a hostile takeover - i.e. if Elon just starts buying up all the shares in the market. If the board accepts his offer to buy the company, the poison pill does not take effect.

What is the poison pill?

If someone buys more than 15% of shares, they can issue more shares to other people to dilute them.

Which other people would get those shares? Would that be considered taxable income for the recipients? If I were a regular shareholder and my shares were diluted without compensation, I'd be pissed...

> Which other people would get those shares?

The offer is extended to existing shareholders.

So if you own 10 stocks you will be allowed to purchase 10 more stocks at a vastly reduced cost.

Something like that.

This way you can screw over the corporate raider without screwing over existing stock holders.

The poison pill is blatantly unethical. The fact that it exists as a tactic where a company can target a specific shareholder and dilute them exclusively, while also diluting other shareholders who don't have the money to participate in the poison pill, is yet more proof that the SEC is a garbage organization.

It's been settled corporate law for decades, and it serves a clear purpose: without poison pills, hostile buyers can also do blatantly unethical things, like coercive lowball bids that punish shareholders that don't tag along.

The other shareholders don't need to have the money:

"Another, perhaps more practical provision of the pill says that the board can just exchange each right for one share of stock, for free, meaning in essence that the board can double everyone else’s number of shares of Twitter while holding Musk’s constant, without asking anyone to put in more money." (From a recent Money Stuff.)

It also gives reasons why poison pills were allowed by the Delaware Supreme Court (and not the SEC).

That seems even worse then; it's effectively the board voting to steal shares from a major shareholder in order to increase their own relative stake in the company. How is that not illegal?

What used to happen before there were poison pills, was a corporate raider would say "I want to buy this company, and I offer 100$ per share. If not everybody agrees to sell to me, but I get more the 50% of shares I will replace the board and then offer a merger in which 30$ per share are offered. The board (which I just instituted) will agree to my offer." That means after a raider has the majority of shares he can stiff the remaining minority shareholders. Of course people knew this on the initial offer and were therefore pressured to accept it or risk losing a lot of money later. I assume you agree that making this possible is not in the interest of sharedholders (or companies), although it made some people very wealthy back in the days. The Delaware Supreme Court considered, that such an extreme threat to shareholders justified extreme countermeasures such as the poison pill. (All of the above just tries to paraphrase Matt Levine, which I can really recommend if one wants to understand such things.)

Why would the newly installed board be allowed to allow a merger with such a low number?

This seems to be the root problem, and it can happen in other scenarios when a coalition controls 51% of the shares. The law needs to protect the minority shareholders.

This poison pill “solution” is just theft.

If one was ever triggered the diluted shareholder would sue for the direct economic damage they suffered as a result. But they still wouldn't end up controlling the company, they'd just get paid out the cash value that was literally stolen from them-- instead everyone would just lose a lot of money to lawyers... which is why, AFAIK, none has ever been triggered.

As far as I know it has never been done in practice but is sure seems like it would have a huge amount of fallout for existing shareholders. Would the board actually pull the trigger knowing this? On the other hand poison pills are widely used and have generally been considered a credible defense.

They don't have to pull the trigger; it's already set up. These triggers never get pulled because it's irrational for a hostile acquirer to play chicken with them; it's like playing chicken with a brick wall.

Every other shareholder gets access to the shares. So the effect is: you can buy $420 worth of twitter stock for $210 unless you're elon musk or working in concert with elon musk.

Some poison pills just give the shareholder extra shares -- it's basically a stock split except for the targeted shareholders.

As described above, it would be like a stock dividend or split (except for the 15%) - no income, no capital gains, no dilution.

In reality, this poison pill is more complicated - from Matt Levine: "The main mechanism of the pill is that if Musk or anyone else acquires more than 15% of Twitter's stock, then every other Twitter shareholder will have the right to pay $210 to acquire $420 worth of Twitter stock (at then-current market prices)."

He also points out that this is moot except in the highly unlikely event that it is triggered - in which case, someone screwed up really badly.

So the discount for existing shareholders is only 50%? That still requires pretty significant investment from their side, what if they can't come up with enough money? Poison pill becomes uneffective, right?

Why wouldn't existing shareholders buy heavily discounted stock, knowing that there's a good chance Musk will go all in and pay a premium for it?

Maybe because they do not have the money, and because it's not certain that musk will go all in.

That explanation sounds like they are just giving away shares, which they aren't. Other parties get the _right_ to buy additional new shares at a reduced rate.

> Other parties get the _right_ to buy additional new shares at a reduced rate.

This is effectively the same as giving away shares.

I think that oversimplifies the dynamics drastically.

First off, even if buying the shares at the reduced rate is highly profitable, you do need the cash to buy them. With the 50% that are floating around here that's a significant amount of cash.

Furthermore, with the dilution that's happening the stock price would also drop so while you gain on the reduced shares, you loose on money on your old shares unless Elon keeps buying.

I just don't see that it's the same as giving away shares for free (which is just adding dilution without additional capital costs for the existing shareholder). Feels to me like an all parties lose situation if it's triggered.

The other shareholders don't need to have the money:

"Another, perhaps more practical provision of the pill says that the board can just exchange each right for one share of stock, for free, meaning in essence that the board can double everyone else’s number of shares of Twitter while holding Musk’s constant, without asking anyone to put in more money." (From a recent Money Stuff.)

Ahh, thanks

I don't understand how that's not financial fraud.

What would be fraudulent about that? Companies issue & retire shares all the time, for lots of reasons.

Yeah but they usually don't do it with the express purpose of screwing over an investor - and when they do, there are consequences (like FB).

You're not making a case for this being fraud. Why would this be fraud rather than a sharp-elbow business tactic? "Fraud" has a concrete meaning; for this to be a fraud, one would need to be able to identify precisely of what Musk has been defrauded.

The poison pill clause is part of the shareholder contract, often specified in the articles of incorporation.

The poison pill is fighting off a hostile takeover, by someone who has offered a first-and-final-offer. It would be screwing the other investors to have zero negotiations for a better deal.

Oh, if they execute the poison pill there will be consequences, just not legal ones.

Trust is a big part of stock value, if you don't trust the board is time to sell...

Because fraud requires deception and there’s nothing deceptive about a poison pill that makes the news.

Check out Matt Levine. He has a great series explaining some potential possibilities. https://www.bloomberg.com/opinion/authors/ARbTQlRLRjE/matthe...

Unfortunately paywalled and not sure which Levine article you mean.

Edit: And as best I can tell Levine has been wrong on this situation at every step…

> And as best I can tell Levine has been wrong on this situation at every step

Perhaps when it comes to the sincerity of Elon's actions, but I'm not aware of when he's been wrong when it comes to Elon's legal options.

Yeah, OP was asking for legal options and this spells them out. Additionally, Levine has been wrong about which option Elon will pick, but he's also generally been spot on about listing all potential options and also saying "this guy is unpredictable, so who knows."

Likely this one: https://www.bloomberg.com/opinion/articles/2022-04-20/elon-c.... FWIW I believe you can read his content for free if you subscribe to his newsletter (or bloomberg's newsletter?).

The poison pill can be trivially (for certain definitions of trivial) avoided by having several allies buy 14% of shares each, I presume.

You presume incorrectly. Any coordination would make Elon and his allies a “group” which would mean they are collectively treated as an individual.

How do you prove people are in a group of this nature?

You check to see if they are communicating.

How do you that without a search warrant?

Ask, I guess. The people doing the communicating are perhaps committing fraud and endangering their own wealth and freedom if they lie. I'm willing to bet the SEC has regulations that apply to this situation already.

If three large shareholders came in with a similar agenda but did not disclose group status, the SEC would investigate. First, the SEC would request that they turn over communications records. 99.9% of the time, they would. If they didn’t, the SEC would seek a warrant.

Again, first lines of the shareholder rights agreement. This is something the lawyers thought of approximately 3 minutes after poison pills were invented.

https://www.law.cornell.edu/cfr/text/17/240.13d-5 seems to indicate they have to be explicitly coordinating to be legally defined as a "group" for this purpose (and Twitter's filing highlights this definition), which seems hard to prove. Twitter can't issue a search warrant, the participants would presumably not write any such deal down on paper, and the action is readily explicable by "I think the acquisition is gonna go through and he's offering a premium, so I'd profit".

The financing is in 3 pools. If each could buy 14% and Musk increases his stake to 14% without triggering the poison pill, that’s 56% in total. If they had 56%, could they immediately gain control? This is getting interesting.