Before Elon Musk’s “buy out” offer, what can Twitter do?
- Tram Ho
According to Bloomberg news, billionaire Elon Musk has offered to buy back 100% of Twitter’s shares, at $54.2 per share, to fully own this famous social networking site. The billionaire said this was the “best” and “last” price he offered. He added: “This is a high price. Shareholders will love this deal.”
Tesla CEO says that this technology company has extraordinary potential and he will explore it. In a letter to the Twitter board, Musk said he believes Twitter “will neither thrive nor serve free speech if it keeps its current model. Twitter needs to be transformed into a private company.” Mr. Musk chose Morgan Stanley as the consulting bank for this acquisition.
Twitter’s board of directors is considering using tactics to protect the company from the “hostile takeover” of billionaire Elon Musk.
According to Investopedia, a “hostile takeover” is the acquisition of a company by another company or individual. This is done by either buying back shares directly from the shareholders of the target company, or fighting for management rights.
The first tactic that Twitter can apply is to give the reason that Mr. Elon Musk’s offer price is too low.
One of the other tactics being proposed is the “poison” defensive tactic. This tactic gives existing shareholders the right to buy back shares at a lower market price, with the aim of diluting the intended acquirer’s shares. This is a fairly common tactic for companies that are under pressure from a “hostile takeover”.
In 2012, the Netflix company used the “poison” tactic just a few days after billionaire Carl Icahn bought back 10% of the company’s shares. According to Netflix’s plan, with any acquisition of more than 10% of shares, existing shareholders will have the right to buy back 2 shares of this company at the price of 1 share.
Six years later, Pizza chain Papa John’s also used the “poison” tactic to prevent founder John Schnatter from turning this Pizza chain into a private company. This tactic will be applied when Mr. John Schnatter holds 31% or more shares, or anyone buys 15% of the company’s common shares without the approval of the Board of Directors.
Source : Genk