With the recent bid of the hostile takeover of Twitter by Elon Musk, the company has adopted a measure approved by the board to purchase additional stocks. The method is widely known as the ‘Poison Pill’.
What is Poison Pill?
Literally speaking, a poison pill is a method adopted by companies when they are threatened with an unwelcome takeover bid. In this method, the companies make intentional efforts to appear ‘unattractive’ to the bidder.
How is Twitter adopting the method?
Against the recent bid of Elon Musk to take over Twitter, the company has authorized existing shareholders of Twitter to buy additional shares of the company at relatively lower prices.
Techniques that can be adopted under the ‘Poison Pill’ strategy?
There are two widely used techniques when it comes to Poison Pill.
Flip-In-Poison Pill: In this method, the company discourages acquiring shareholders by releasing additional shares for the existing shareholders of the company. Currently, Elon Musk has shares worth just over 9% of their stake in Twitter.
Flip-over-poison pill: Under this strategy, the target company has the opportunity of purchasing shares of the acquiring company at a reduced price. This strategy works during unwanted takeovers as it threatens to drastically devalue or dilute the stocks of the company.
The poison pill strategy is adopted by Twitter to buy them some time to establish a defense strategy against the hostile takeover of Elon Musk.
Earlier on Saturday, Former CEO and founder of Twitter Jack Dorsey replying to a tweet about the board of directors in the company slammed Twitter and said “It’s consistently been the dysfunction of the company”.