Elon Musk's Attempt to Woo Twitter's Board Ends With a Poison Pill​

By BK​

What do you need to know this week?

Last Thursday, Elon Musk, the CEO of Tesla and founder of SpaceX, or alternatively, world’s richest person, made his “best and final” offer to privatise Twitter in a deal valued at $43 billion. Musk is already Twitter’s largest individual investor, holding a 9.2% stake in the company which is worth approximately $3.35 billion. Musk has rejected an offer to join Twitter’s board.

Investors were initially displeased with this offer. Twitter shares closed down 1.68% on Thursday, indicating that most shareholders probably expect the company’s board to reject Musk’s bid as inadequate and overly vague on its financing details.

Why is this important for your interviews?

Investors sighed a breath of relief on Friday.

In response to the hostile move from Musk, who has threatened to ‘reconsider’ his 9.2% stake in the company if his 100% stake offer is rejected, Twitter’s board adopted a “poison pill” policy. This “limited-duration shareholder rights plan” will dilute anyone from having more than a 15% stake in the company by selling more shares to other shareholders at a discount. This policy will be in place for 364 days.

Although this move will not bar Musk from taking his offer directly to Twitter’s shareholders, it is designed to give Twitter’s board the option to flood the market with so much newly created stock that a takeover becomes unrealistically expensive.

How is this topic relevant to law firms?

Twitter’s legal department will have their hands full for the foreseeable future.

“Poison pill” policies often lead to lawsuits alleging that the corporate board is using the tactic to keep their jobs against the best interest of shareholders. Indeed, there is a non-zero possibility of Twitter being sued by Musk who threatened on Thursday that “If the current Twitter board takes actions contrary to shareholder interests, they would be breaching their fiduciary duty.” Twitter’s legal department is likely to instruct law firms specialising in corporate governance and litigation in preparation of this threat.

Additionally, Twitter’s legal department will require additional ‘muscle’ from law firms in evaluating multiple steps, such as how to comply with federal antitrust regulators in two areas. Firstly, a major anticompetitive concern would be how would regulators regulate content on Twitter should the company, which is currently public and subject to a greater level of regulation, be turned private through Musk’s takeover. Twitter has struggled to balance how it regulates content on the site. Conservatives have consistently denounced Twitter’s supposed liberal bias, while others allege that the platform does not do enough to curb violent or hate speech. Law firms will likely be called to facilitate the policy dialogue between Twitter executives and top regulators.

Secondly, and closely related to the previous concern, what will happen to Twitter’s user data? Musk’s proposed total control of Twitter spurred concern amongst privacy experts and social-media researchers. As social-media platforms are known to hold enormous influence over individual and collective social behaviour, Musk’s potential monopoly over Twitter’s user data may give one ‘enigmatic’ billionaire too much sway on real-world events.