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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?

#91

Post by tptacek »

SilasX wrote: post #84
colonwqbang wrote: post #78

Earlier quoted context omitted.

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 i…

>It just seems strange that there isn't some rule saying that the board has to treat shareholders more or less equally. AIUI, there is such a rule, and, FWIW, that’s why I found the OP’s explanation[1] somewhat dubious. Deliberately sabotaging the corporation for the benefit of another one that the 51%er owns … seems like the kind of thing that the courts would strike down. [1] https://news.ycombinator.com/item?id=31…

Poison pills have been settled law in the US for decades.

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

#92

Post by rcoc »

majkinetor wrote: post #81
egeozcan wrote: post #68

Earlier quoted context omitted.

As I understand, this happens before anyone acquires 51 percent.

Is it possible to acquire up to 51% in atomic move, so there is no fade in that would make poisoning option too late ?

It would require a number of transactions as there is no single other shareholder that owns 51% in this case. So you can do a large number of transactions in a short window, which would cause the price to skyrocket. Additionally, there are disclosure requirements in place once a single shareholder reaches 5%+ ownership. Once the word gets out, everyone else starts buying.

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

#93

Post by tptacek »

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?

Shareholders are discriminated against all the time; companies have "preferred" and "common" shareholders. Meanwhile: nobody is actually discriminated against, because it's economically irrational to buy more than the shareholder rights plan trigger; from some light reading, it looks like no poison pill has ever been triggered (the whole point of the poison pill plan is to prevent that from happening).

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

#94

Post by colinmhayes »

xyzzy21 wrote: post #73

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 metho…

I'm gonna go ahead and say this comment is misleading. The board is obligated to make decisions that they believe in good faith will maximize shareholder value. If they can come up with a reasonable explanation for why twitter is worth more than 54.20 (like it being worth 70 last year) they can go ahead and decline the offer.

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

#95

Post by jdasdf »

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 are not discriminating. Elon can purchase the same amount of stocks (proportionally) at the same price as every other shareholder.

It's just that since the strike price is lower than the price he is offering to buy the company at, other investors are better off exercising their warrants and then selling to elon.

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

#96

Post by jdasdf »

colonwqbang wrote: post #78
emeraldd wrote: post #72

Earlier quoted context omitted.

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 i…

They are treating them equally. Elon has just as much of a right to purchase those shares at the same price as any other shareholder.

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

#97

Post by tptacek »

Nobody knows yet why the board relented, but the scuttlebutt seems to be that Twitter arranged an internal valuation once Musk put a price on the company, presumably as justification for an internal plan that they'd announce as their alternative to acquisition, and the valuation actually showed Musk was overpaying for the income Twitter was likely to generate.

(If the board hadn't relented, Musk's next step would have been to arrange for a tender offer, which goes directly to the shareholders, but does not involved Musk acquiring new shares, but rather just a commitment to buy those shares if the board drops the poison pill. Successfully getting that commitment would be a very strong signal to the board, which would likely then drop the shareholder rights plan and allow the acquisition to proceed. But Twitter's board skipped those steps.)

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

#98

Post by tptacek »

colinmhayes wrote: post #94
xyzzy21 wrote: post #73

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 metho…

I'm gonna go ahead and say this comment is misleading. The board is obligated to make decisions that they believe in good faith will maximize shareholder value. If they can come up with a reasonable explanation for why twitter is worth more than 54.20 (like it being worth 70 last year) they can go ahead and decline the offer.

Notably, from one of that post's own links:

A board can use the protection of a rights plan to respond to an underpriced bid, counter the tender offeror's timing and informational advantages, and force the hostile acquirer to negotiate with the board.

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

#99

Post by jmaygarden »

tptacek wrote: post #93
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?

Shareholders are discriminated against all the time; companies have "preferred" and "common" shareholders. Meanwhile: nobody is actually discriminated against, because it's economically irrational to buy more than the shareholder rights plan trigger; from some light reading, it looks like no poison pill has ever been triggered (the whole point of the poison pill plan is to prevent that from happening).

As far as I know, the only instance of a poison pill being triggered was Versata Enterprises, Inc. in December 2008.

TL;DR: A competitor (Selectica, Inc.)--wishing to purchase Versata--bought over 5% of the shares. The IRS considers this an ownership change, and it imposes a penalty to discourage trading of Net Operating Loss (NOL) carryovers. A poison pill was in place to prevent this tax issue. The board executed the poison pill to dilute Selectica ownership from 6.4% to 3.9%, and that action held up through appeal to the Delaware Supreme Court.

https://www.lw.com/upload/pubcontent/_pdf/pub2563_1.pdf

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

#100

Post by [deleted] »

qiskit wrote: post #88
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

This is simply wrong. The board outright rejected musk's offer and instituted a poison pill to prevent a hostile takeover of twitter by musk. So elon simply bypassed the board of directors and went to the major shareholders. It is the major shareholders who has final say, not the board of directors. Elon convinced enough of the major shareholders to accept his deal and once that happened, the board of directors has n…

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