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Ask HN: What happened to Twitter poison pill?

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Re: Ask HN: What happened to Twitter poison pill?

#71

Post by jollybean »

colonwqbang wrote: post #65
mabbo wrote: post #63

During a hostile takeover, someone buys 51% of the shares. They then elect a board of people who will approve whatever they want. Then they can do things like 'merge' the company with some other company they own at a board-approved value-per-share. That value will be much lower than what they paid per share when buying it on the open market, but not so low that the government gets involved. Eg: Musk buys the shares a…

> The board represents ALL the shareholders, after all. This is the part I don't get. The person who bought 51% of shares is also a shareholder. How come the board can discriminate against a single owner like this, just taking away their shares by force. Could they do it to any existing owner if they wanted?

The poison pill is to make it so that the person can't ever get 51% because it's not good for everyone else.

The 'short answer' to the question of 'why no poison pill' is simply because the Board reached some kind of agreement with Musk.

I like Musk when he's in his lane, I don't see any good coming from this.

Everyone is nuts to talk about 'shareholders' - who cares? As a 'consumer' - I want a good service and cheap (i.e. free) with no ads. I have zero interest in 'shareholders' of a company I'm not a shareholder in, other than legal protections.

Caring about 'shareholder value' while not a shareholder, is like caring about some rich guys bank account - when often it's a zero sum game.

Every dollar in an investors pocket should be a dollar on your pocket in term of reduced price etc..

So aside from some things he may be able to do t bring the share price up ... I'm wary that much at all will actually benefit Twitter, and he could ruin it.

I don't personally care about it, but it's an important media tool - it's how a lot of information gets out.

Re: Ask HN: What happened to Twitter poison pill?

#72

Post by emeraldd »

colonwqbang wrote: post #65
mabbo wrote: post #63

During a hostile takeover, someone buys 51% of the shares. They then elect a board of people who will approve whatever they want. Then they can do things like 'merge' the company with some other company they own at a board-approved value-per-share. That value will be much lower than what they paid per share when buying it on the open market, but not so low that the government gets involved. Eg: Musk buys the shares a…

> The board represents ALL the shareholders, after all. This is the part I don't get. The person who bought 51% of shares is also a shareholder. How come the board can discriminate against a single owner like this, just taking away their shares by force. Could they do it to any existing owner if they wanted?

They aren't taking away anything, they would be diluting the 51% shareholder's shares. They're giving themselves the option to fend off a hostile take over by making the pool bigger so that no one can get to 51% ownership.

Re: Ask HN: What happened to Twitter poison pill?

#73

Post by xyzzy21 »

The legality of a poison pill is defined by case law of of Unocal vs. Mesa Petroleum.

https://en.wikipedia.org/wiki/Unocal_Corp._v._Mesa_Petroleum....

Basically a company can ONLY create a poison pill IF and ONLY IF:

* the tactics of the party doing the hostile takeover are "coercive"

* the hostile takeover will likely result in dissolution of the company

Neither applies to Twitter in any serious sense. Musk's methods are anything but coercive under the law per point #1. A change in direction or operations is NOT legally the same as point #2.

Additionaly, board members are required under law to maximize shareholder value under the rubrik of profit maximization (eBay vs. Newmark) and public company board members can be PERSONALLY legally liable for lost profits and punitive damages.

https://www.lexisnexis.com/community/casebrief/p/casebrief-e...

It's VERY LIKELY that the Twitter board was informed of these cases (again, hopefully - these are legal fundamentals of being on a corporate board you'd be stupid not to know ahead of time).

As a result the Twitter board appears to have "straightened up and are flying right" in terms of law and potential legal liability now.

Again: I'm utterly mystified that boards (especially in "Tech") do not seem to know basic stuff like this and let companies run riot in ways that puts both the board and executives at tremendous personal legal and financial risk.

Re: Ask HN: What happened to Twitter poison pill?

#74

Post by qiskit »

> What caused the board to change the direction 180 and now closing the deal with Musk?

Enough of the large shareholders behind the scenes backed the deal for whatever reason. Who, what and why? We'll never get the real story. Not in any newspaper, blog or whatever. I'm sure we'll get some fanciful stories, but that's all it'll be. Fanciful stories.

The board of directors aren't the ones that have the final say. It's the major shareholders. Usually, the major shareholders back the board of directors because they are the ones who elect/hire the board of directors. Somehow, Elon and his backers convinced enough of the big boys to back him instead of the board of directors. Simple as that. Maybe he offered them free a roadster, starlink setup or a seat on a future spacex mission to mars. Who knows. But elon outmaneuvered the board of directors somehow.

Re: Ask HN: What happened to Twitter poison pill?

#75

Post by paxys »

vimy wrote: post #44
afavour wrote: post #38

My read on it is that the shareholders didn’t want Musk controlling the company (owning 51%) and dragging them along with him. Being the absurdly rich person he is, he’d likely not care too much about how service changes would affect the stock price. However they are quite happy to let Musk buy all of them out (owning 100%) at a reasonable price then let him do whatever marketshare-tanking moves he wishes. They don’t…

But owning 100 % was Musk's offer all along.

There was nothing stopping him from increasing his share while the board was deliberating. He could have used that tactic to increase pressure. The poison pill clause meant that the board was free to take whatever decision they wanted in the timeframe they deemed fit.

Re: Ask HN: What happened to Twitter poison pill?

#76

Post by wskinner »

Matt Levine has been talking about this in most of his recent newsletters. Today's includes a play by play overview of the recent moves by Musk and the board along with explanation of why these steps happen the way they do: https://www.bloomberg.com/opinion/articles/2022-04-25/elon-c...

Re: Ask HN: What happened to Twitter poison pill?

#77

Post by delecti »

jszymborski wrote: post #55
colechristensen wrote: post #29

The poison pill was intended to prevent a takeover without the board’s approval (buying 51% on the open market) The board is negotiating an approved takeover which is entirely different I.e. the board was saying “you can only buy Twitter if we say so” There was no reversal of intentions

Does anyone know if the terms were made more favourable to Twitter since the adoption of the Poison Pill?

I think that, as far as the public is aware, there weren't terms prior to the adoption of the poison pill. Musk bought a bunch of shares, and was looking to buy more. The poison pill was the board preemptively saying "we see what you're doing, and you have to go through us to accomplish it".

Re: Ask HN: What happened to Twitter poison pill?

#78

Post by colonwqbang »

emeraldd wrote: post #72
colonwqbang wrote: post #65

Earlier quoted context omitted.

> The board represents ALL the shareholders, after all. This is the part I don't get. The person who bought 51% of shares is also a shareholder. How come the board can discriminate against a single owner like this, just taking away their shares by force. Could they do it to any existing owner if they wanted?

They aren't taking away anything, they would be diluting the 51% shareholder's shares. They're giving themselves the option to fend off a hostile take over by making the pool bigger so that no one can get to 51% ownership.

Sure, I accept that it's legal in the US. It just seems strange that there isn't some rule saying that the board has to treat shareholders more or less equally. Since the board is elected by the shareholder votes it seems weird that they can just redistribute voting power at will.

What if there was some minority shareholder that the other owners disliked for some reason, could they force them out too? Or this power is restricted to particular circumstances?

Re: Ask HN: What happened to Twitter poison pill?

#79

Post by st_goliath »

_j5l3 wrote: post #51
adenozine wrote: post #45

For a startup-oriented discussion place, it's shocking how little users know about how mergers/acquisitions/takeovers actually occur in the market. Don't they teach this stuff anymore? I had to learn this in college, many years ago. Of course, it was a little less likely for eccentric billionaires to just "shop" in the market like this for ultra-large corporations. Still. We at least knew how the processes worked.

> I had to learn this in college, many years ago. I majored in Computer Science and Physics. Which of these disciplines would mergers and acquisitions have been in? Should my algorithms class taught us about diluted stock and RSUs vs ISOs? Does my quantum mechanics professor have a unit on hostile takeovers?

I guess that'd be astrophysics: Two large piles of money circling each other, causing distant ripples on the stock market.

Re: Ask HN: What happened to Twitter poison pill?

#80

Post by xyzzy21 »

colonwqbang wrote: post #65
mabbo wrote: post #63

During a hostile takeover, someone buys 51% of the shares. They then elect a board of people who will approve whatever they want. Then they can do things like 'merge' the company with some other company they own at a board-approved value-per-share. That value will be much lower than what they paid per share when buying it on the open market, but not so low that the government gets involved. Eg: Musk buys the shares a…

> The board represents ALL the shareholders, after all. This is the part I don't get. The person who bought 51% of shares is also a shareholder. How come the board can discriminate against a single owner like this, just taking away their shares by force. Could they do it to any existing owner if they wanted?

If those who already own stock in the 49% sell, then someone else can buy up to 49% even if the 51% holder never sells.

The amount of ownership can change for one already owning 51% if the amount of stock issued changes - that changes the denominator

Finally: there is proxy voting. Normally common stock holders have 1 vote per share. However most votes are "proxy voted" where you give your vote to someone else because "reasons" - like you can't attend but an institutional investor seems to represent your position so you proxy to that investor.

Via proxy voting, it's possible to push past 51% as a minority shareholder.

Related to this, you can create an informal alliance with an institutional investor owning a larger share in the same company. This appears to be how Musk "borrowed" the money for his takeover - the money came from a large institutional investor that makes money on both ends: interest paid on the loan plus the promise of higher returns on Twitter stock. That's what's called a "can't lose investment" that no ideology can beat.

Of course, the Twitter board famously owns no significant amount of stock which is problematic but reality - this means they have ZERO skin in the game so are more likely to shirk (or risk to shirk) their legal obligations for fiduciary responsibilities. They apparently got a legal wake up call over the weekend about this however.

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