What is twitter ‘poison pills’?

What is twitter ‘poison pills’?

Subject: Economy

Section: Capital market

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

Content:

In order to protect themselves from hostile takeovers during these testing times, many companies across the world are taking ‘poison pills’ to ward off hostile takeovers.

• The term poison pill refers to a defense strategy used by a target firm to prevent or discourage a potential hostile takeover by an acquiring company.
• Potential targets use this tactic in order to make them look less attractive to the potential acquirer.
• The ingredients of each poison pill vary, but they are all designed to give corporate boards an option to flood the market with so much newly created stock that a takeover becomes prohibitively expensive.

It emerged in the 1980s, when lawyers for an oil company targeted by corporate raider T. Boone Pickens advised the company to flood the market with new shares, making it more difficult for Pickens to buy a controlling stake.

• The typical poison pill is structured as a shareholder rights agreement, where the existing shareholders of the target company get rights to buy additional shares the moment a takeover is announced. These shares may carry a steep discount to the market price or additional voting rights.
• The mechanism protects minority shareholders and avoids the change of control of company management. Implementing a poison pill may not always indicate that the company is not willing to be acquired. At times, it may be enacted to get a higher valuation or more favorable terms for the acquisition