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      What is Poison Pill | Twitter’s Weapon Against Elon Musk

      Twitter is trying to stop Elon Musk’s takeover attempt with a “poison pill”, a financial device that companies have been wielding against unwelcome suitors for many decades.

      What are Poison Pills?

      The ingredients of each poison pill vary, but they’re all design to give corporate boards an option to flood the market with so much newly create stock that a takeover becomes prohibitively expensive.

      The strategy was popularize back in the 1980s when publicly held companies were being stalk by corporate raiders such as Carl Icahn now more frequently describe as “activist investors.”

      Twitter didn’t disclose the details of its poison pill but said it would provide more information in a forthcoming filing with the Securities and Exchange Commission, which the company delay because public markets were close.

      Twitter’s plan will be trigger if a shareholder accumulates a stake of 15% or more. 

      Elon Musk currently holds a roughly 9% stake.

      What are poison pills suppose to do?

      Although they are suppose to help prevent an unsolicite takeover, poison pills also often open the door to further negotiations that can force a bidder to sweeten the deal.

      If a higher price makes sense to the board, a poison pill can simply be cast aside with the acrimony it provoke, clearing the way for a sale to complete.

      True to form, Twitter left its door open by emphasizing that its poison pill won’t prevent its board from “engaging with parties or accepting an acquisition proposal” at a higher price.

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      Adopting a poison pill also frequently results in lawsuits alleging that a corporate board and management team is using the tactic to keep their jobs against the best interests of shareholders.

      These complaints are sometimes file by shareholders who think a takeover offer is fair and want to cash out at that price or by the bidder vying to make the purchase.

      How has Poison Pills defence work in the past?

      Takeover often dissolve into gamesmanship that include poison pills and other manoeuvres design to make a buyout more difficult.

      That’s what happen in one of the biggest and most drawn-out takeover dances in Silicon Valley history.

      After business software maker Oracle made an unsolicited $5.1 billion (approx. Rs. 38,930 crore) offer for its smaller rival PeopleSoft in June 2003, the two companies spent the next 18 months fighting with each other.

      PeopleSoft not only adopt a poison pill that authorize the board to flood the market with more shares, it also create what it call as a “customer assurance program.”

      That plan promise to pay customers five times the cost of their software licenses if PeopleSoft was sold within the next two years, creating an estimated liability of up to $800 million (approx. Rs. 6,100 crore) for an acquiring company.

      PeopleSoft also got another helping hand when the US Department of Justice filed an antitrust lawsuit seeking to block a takeover, although a judge rule in Oracle’s favour.

      Even though the company end up selling to Oracle, PeopleSoft’s defence strategy paid off for its shareholders.

      Oracle’s final purchase price was $11.1 billion (approx. Rs. 84,730 crore), more than twice its original bid.

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