Then they can do things like 'merge' the company with some other company they own at a board-approved value-per-share. That value will be much lower than what they paid per share when buying it on the open market, but not so low that the government gets involved. Eg: Musk buys the shares at $50/share, and then 'merges' the company at $25/share, effectively forcing 49% of the shares to be sold at half price. Those shareholders get screwed because they didn't sell their shares during the initial takeover.

Edit: Or, just run the company however they want and share the profits with the other 49%, but ignore their votes, etc.

The Poison Pill says "If a hostile takeover starts, we'll create and sell new shares at a reduced price to existing shareholders- other than the attacker- to prevent the 51% scenario". This is done not to prevent any takeover, but in the interest of the 49% of holdouts who would have been screwed over. It's an effective block against the takeover.

The board represents ALL the shareholders, after all. They don't want to see anyone get screwed.

But now Musk has made a deal that the board has approved. All shareholders get a specific price that is approved. The board wants this to happen, so there's no poison pill.

2. Why is it even allowed (by the government) to decide the share price at the board meeting? These shares don't belong to them, somebody has purchased them already. And these people have decided what the shares are worth, that's kinda the definition of "market price". The board didn't decide that, market did. If they want to get these shares back it sounds only fair that they should have to pay what the new owners consider the fair price, whatever it is.

The most boring conclusion here (boringness on message boards usually being a strong proxy for accuracy) is that the board's initial reaction to Musk's offer was reflexive, the same way you'd push back on someone offering to buy your house based on a fixed premium from like Zillow, and that over the ensuing weeks they've managed to do the homework to evaluate the deal, and they've decided Musk is overpaying, so they're taking him up on it.

From everything I've read --- I'm not an expert and someone like 'JumpCrisscross could jump in and correct me --- is that the deal blowing up was essentially the default state, once the shareholder rights plan was put in place.

(not saying you’re wrong, both or neither of these may be true)

Part of my analysis is based on the rumor that Twitter completed a valuation over the weekend, and it wasn't super favorable. But I've got no reliable reporting that establishes that.

Either way, my real point is just that the board could easily have stopped this deal if they wanted to; in fact, they didn't even have to do anything to do stop it.

Maybe if the board had information that hadn't been published yet showing that the company's financials had completely tanked since the last earnings report it would be different, but other than that, Twitter's financials are obviously public, and even if the board used something like the DCF method and obtained a number much lower than the market cap, that has absolutely no bearing on whether they would accept a certain price from Musk.

So, no, it's really the share price that matters in this situation.

Also, even if you're purely talking about valuations, there are other common valuation methods like the comparable method that look at what similar companies have received based on their share price, so the idea that the board would decide to sell purely based on cashflow projections is not correct.

> Maybe if the board had information that hadn't been published yet [...]

Yes, Musk's bid may be overpaying, but in that case board's duty is to grab the money - and that's probably why he is overpaying.

I specifically mentioned the "market price". I don't really know how these US congress persons work, and you may as well imply that the idea that they "represent" you is as much bullshit, as Musk-assigned board member represent real shareholders (and I have no problem with this implication), but there surely must be difference (and it isn't even the fact that you supposedly voted for them): unlike congress people, who can decide whatever they decide in the USA congress, the board cannot decide the market price. At least, usually. Every shareholder wants market price to be higher, and the board members are supposed to try to achieve that, but they cannot appoint the price, they simply have no such power. By definition, it's the market who decides that. Otherwise, it isn't clear, what the "not so low that the government gets involved" is even supposed to be. I fully admit that I don't understand how this works, so this may sound silly, but it would seem fair to me that since the moment company became public, nobody ever can undo that, because microscopic pieces of that company legally belong to some random people now, and they can ask whatever price they want for their share. If anybody makes them sell at any price that's less than what they want — it's a robbery.

Now, I can kind of imagine the way this could be worked around. E.g., there must be some way to liquidate the company, and hence there must be way to execute the merger regardless of what shareholder minority thinks of that. Each company gets supposedly "fair" valuation before the merge and old shareholders get specific amount of "new" shares in exchange to their old shares, which is kinda like getting the cash, so here we go. I mean, I still cannot explain myself, how this can be considered fair and legal, but I suppose there is an explanation. But even this way, the natural way to do that seems to use today's market price. So even if 51% belongs to 1 person and nobody else can decide anything (so, he basically IS the board already), how can this person offer shareholders anything else than the market price for what belongs to them? This doesn't make any sense to me. It sounds like a robbery, plain and simple.

One of the stipulations of being a shareholder is that you may be forced to sell your shares under certain circumstances. Nothing illegal about it, even if you don’t like it.

Takeovers of UK-listed companies are subject to the Takeover Code [0] which is administered by an independent body called the Takeover Panel. The Takeover Code is actually a surprisingly readable document which sets out all the rules that the bidder, the target and the shareholders must follow. A "mandatory" takeover in the UK is triggered when a shareholder goes over a 30% shareholding - they are then obliged to make an offer for the stock that they do not own at the highest price they have paid in the previous 12 months.

Shareholders cannot be forced to sell until the bidder has received acceptances of more than 90% of the shares to which the offer relates. The board of the target will offer shareholders an opinion on the takeover price - they can either recommend or reject the offer. Typically, when boards recommend an offer then shareholders will accept but there is certainly no obligation to.

Interestingly, the Takeover Panel used to have no legal enforcement powers (I'm not sure exactly what their status is these days). To ensure compliance with the rules there was a punishment called 'cold-shouldering' - basically if you breached the Takeover Code in an egregious way, the Takeover Panel could instruct market participants to stop dealing with the guilty party. This has only been used in very rare circumstances [1].

[0] https://www.thetakeoverpanel.org.uk/wp-content/uploads/2022/...

[1] https://www.thetakeoverpanel.org.uk/the-code/compliance/cold...

No, this incorrect. Pending a shareholder vote, the board of a company can force you to accept an amount they determine to revoke the validity of your shares. If the value per share (which they decide) of a specific class of shares is not so low as to illicit concern from regulators then it's all above board.

So, once more, my question is: what is the underlying legal idea, that makes this supposedly "fair deal"?

At a guess I'd say the answers to the two questions are "they do legislate against some behaviours, but blocking hostile takeovers is worse than allowing them" and "the risk of that happening is built into the market price," but I don't actually know.

there is also the option of not letting people buy or sell stocks at all, which would resolve the same issues the mandatory sell provisions resolve

Publicly traded securities aren't the Wild West, and the real world has built up comparatively effective dispute resolution tooling like "courts," elected and appointed "judges," "regulators," and "prosecutors."

Not to mention "case law" and "precedence"

Those conditions and corporate structures should be regulated way more thoroughly, preventing legal fuckery such as this. Or share classes.

Someone noted the UK position required shareholder assent, which sounds like what you're saying here.

If shareholders vote that sounds 'fair'. If the board decided and shareholders are obliged to go with it as that's how shares are [in some particular jurisdiction/market] then it being fair seems of no concern to that system (as a sibling content intimated).

The board basically voted to stop standing in the way of the deal and submit it to shareholders themselves since they confirmed that A) it seems like an ok deal and B) it's likely to not waste everyone's time.

In this case, Reuters reported here https://www.reuters.com/technology/exclusive-twitter-set-acc... that the deal is subject to shareholders vote before it can be closed.

If you don't trust the board to do right by you, you are free to (and should) sell your shares.

> if you make me to sell my property ...

zwily explained above ( https://news.ycombinator.com/item?id=31162992 ) shares are not your property.

> US equities, corporate and municipal bonds can be issued in certificated form, though this practice has been largely replaced due to the costs and inefficiencies of keeping them. Rather holdings are kept as "immobilized" or "street name", with the beneficial owners keeping them in accounts at broker-dealers and banks, just as they do for currencies. DTCC uses a nominee firm, Cede & Co., in whose name a share certificate is held in the DTCC vaults. Each day DTCC reconciles with the relevant transfer agent the number of shares held in its accounts for its member banks and broker-dealers. In turn, other banks and broker-dealers hold accounts with DTCC member firms, creating a chain of ownership down to the beneficial owner.

https://en.wikipedia.org/wiki/Securities_market_participants...

As for why it's fair - a share doesn't represent ownership of a company, it represents a voting share in an abstract entity. Normally these are pretty close to the same thing, but there are important distinctions - such as here. When Twitter goes private the abstract entity it used to be will cease to exist, along with all voting rights in such.

If you bought shares after the last annual shareholders' meeting, well... presumably you were happy enough with the current board members and the company bylaws to buy the shares in the first place. You did... do some diligence before you invested, right?

When you purchase stock in a company, you agree to certain governance principles, rights and responsibilities. Those principles outline an individual shareholder's rights in the event of an acquisition.

Basically, you agree to those terms when you purchase the stock. If you don't like your rights, don't purchase the stock. If you own a stock and don't believe the governance structure has your best interests in mind, sell it.

Every public company has articles of association which define the rules determining things like this. By purchasing a share you agree to those articles of association. You can’t just say “hold up I didn’t agree to this”, because you did.

I mention it here as I hadn't thought about this beforehand, and many examples were given in that podcast of the advantages of property (bitcoin, real estate, barrel of oil) compared to securities (shares). Less potential for conflict of interest, stronger concept of ownership and stability over time.

A lot of work and planning goes into the sale of a company, and there are a _lot_ of safeguards to ensure such a sale isn't done in a way intended to "rob" a large amount of shareholders[0]. You don't really "own" a stock in the regular sense of ownership simply because of the absolute mass of laws and regulations that surround both what you can do with your shares and how much they're worth.

0: https://www.lw.com/thoughtLeadership/the-latham-and-watkins-...

It's a bit complicated. The "market price" isn't really the target here, if you are talking about the price of the stock on stock exchanges. It's accepted that there is a thing called a "control premium" - basically it is more valuable to own >50% of a company because in addition to having an economic stake, you can now control the company. So when you are buying a company, you generally have to pay more (20%+) than the "market price" because you are also purchasing the "control premium".

So, there is a zero sum game going on here. That control premium is going to be divided up between the buyer and the seller based on the strength of their bargaining positions. For various reasons (poison pill included) board has a stronger negotiating position in extracting the "control premium" than do individual investors. If you weaken the current shareholder's bargaining position (by for example not allowing the board to negotiate price) you increase the share of the control premium going to the purchaser and decrease the share going to the current shareholders.

FWIW the poison pill is controversial. But from a "Law and Econ" perspective - this is the main justification.

One is that poison pills kind of soften the edges of capitalism a bit by allowing directors to decide if they want to the company to be sold or not. Call it crocodile tears by entrenched management, but there is something to be said for keeping a company off the market if the hostile bidder is going to just fire workers and scrap the company for parts. Fairly, this view is not consistent with "shareholder primacy" but it has to be said that not everyone sees the world that way.

Here's a more in depth apologetic for the interested: https://theliptonarchive.org/1980s/

In that Instance it was decided by a share holder vote after board negotiations.

Then you get a cheque for the money once it's agreed and gone through.

Happens very quickly with no fuss. All very efficient.

And that's that.

I wonder if the NASDAQ or similar in the US requires a share holder vote?

I have some TWTR, and I expect the same thing will happen.

I wonder if the federal government would ever purchase companies like this…

It is like when an athlete's agent puts out a press release about how the player doesn't feel valued at the current club, etc, etc when they're in the middle of negotiations making it seem like they're very open to jumping ship and stirring up a groundswell of emotions from the fans. But really they're just looking for a bit more in their contract. Deal closes, player signs, the statements are forgotten in a week or two.

We'll probably never know exactly what the points of contention were in the twitter deal.

Today, the board accepted Musk’s offer to buy Twitter for $54.20 a share.

What is that if not a 180?

1. Elon Musk proved he was serious by arranging the funding.

2. Elon Musk threatened to sue the board for breach of fiduciary duty — claiming the sale was a good price and shareholders were harmed by not taking it.

And possibly a quiet third:

3. Twitter asked around and no one else was willing to offer a higher price — particularly given the downward trend of markets at present.

I think the board caved when it became clear they’d be personally liable if they refused on purely political grounds.

[1]https://qz.com/1001650/hedge-fund-billionaire-paul-singers-r...

The Twitter board was sued last year due to their deals with Elliot Management — and may not want to face a second, concurrent lawsuit about breach of duty. [3]

[1] https://www.forbes.com/sites/abrambrown/2021/04/01/jack-dors...

[2] https://www.investopedia.com/articles/insights/060916/top-3-...

[3] https://www.ft.com/content/5f3dd95f-8a7c-4f39-991a-87b2bc056...

This needs to be prevented in the future. The racist racist at right just bought Twitter because they're tired of being silenced. Users will just go elsewhere, rip Twitter and thanks for making Elon poor, he was getting annoying.

I've read a few articles here and there but this was the motivation I needed to properly subscribe.

This is the part I don't get. The person who bought 51% of shares is also a shareholder. How come the board can discriminate against a single owner like this, just taking away their shares by force. Could they do it to any existing owner if they wanted?

TL;DR: A competitor (Selectica, Inc.)--wishing to purchase Versata--bought over 5% of the shares. The IRS considers this an ownership change, and it imposes a penalty to discourage trading of Net Operating Loss (NOL) carryovers. A poison pill was in place to prevent this tax issue. The board executed the poison pill to dilute Selectica ownership from 6.4% to 3.9%, and that action held up through appeal to the Delaware Supreme Court.

https://www.lw.com/upload/pubcontent/_pdf/pub2563_1.pdf

The 'short answer' to the question of 'why no poison pill' is simply because the Board reached some kind of agreement with Musk.

I like Musk when he's in his lane, I don't see any good coming from this.

Everyone is nuts to talk about 'shareholders' - who cares? As a 'consumer' - I want a good service and cheap (i.e. free) with no ads. I have zero interest in 'shareholders' of a company I'm not a shareholder in, other than legal protections.

Caring about 'shareholder value' while not a shareholder, is like caring about some rich guys bank account - when often it's a zero sum game.

Every dollar in an investors pocket should be a dollar on your pocket in term of reduced price etc..

So aside from some things he may be able to do t bring the share price up ... I'm wary that much at all will actually benefit Twitter, and he could ruin it.

I don't personally care about it, but it's an important media tool - it's how a lot of information gets out.

Shareholders own the company. Which is why people care what they think.

I have preferences for how my neighbors manage and maintain their properties, but since I don’t actually own those properties, my preferences don’t mean a lot.

As a customer of a company, I can decide whether I’m getting my money’s worth. As a general observer I might have an opinion about whether the company makes the world a better place. So shareholders shouldn’t be the only story. But I don’t think it’s strange to focus on what the shareholders think, or for the company’s owners to decide on corporate direction.

But it's nuts - why would 'most people' who are likely Twitter 'users' and not 'shareholders' care about someone else's benefit over their own?

Twitter could very well jam up with more ads - as a sure fire way to make more money.

But not I / We are stuck with a crappier product, possibly very crappy i.e. a value transfer from our pockets, to investors.

Shareholders technically 'control' the company, they can do what they want, but what we should want them to do is 'lose money' and give the surpluses to us.

And I want world peace, people to start using their turn signals, and a pony.

We can want whatever we like. Doesn’t mean the world is going to, or even capable of delivering it.

There is value on the table, Musk is going to try to take some away, probably in a zero-sum way.

Musk could very well jam Twitter full of ads, making it sheite for us, but more money for him.

Nobody should want that but literally a single person: Elon Musk. Everyone else, who uses Twitter, should be against it.

Changing a few features here and there otherwise, will not somehow magically engender a ton more users.

So the 'low hanging fruit' for investors to 'unlock value' is really about ads.

More ads generally makes the product worse for users.

I feel this is unrealistic. What other services are good, free and ad-free? Very few. Someone has to pay for the development cost and the upkeep, and that someone will be calling the shots.

I much prefer a "democratic" system where as a customer I pay certain amount of money for using Twitter (say, 5 dollars a month) and get a vote on future changes to a system where I am a free "user / consumer" (and a product at the same time) and some shadowy entity manipulates everything it can to its own non-public purposes.

In order to turn just a little bit more civil, Twitter needs citizens, not users/consumers. And citizens usually have to pay some tax for the system to be sustainable.

What if there was some minority shareholder that the other owners disliked for some reason, could they force them out too? Or this power is restricted to particular circumstances?

If the pill were activated and you were diluted out you could sue over the economic harm e.g. that they effectively stole half your position-- and you'd quite possible be reimbursed for the dilution. But you'd be more or less back where you started, minus the mountain paid to lawyers and still without ownership of the company.

Keep in mind, these poison pills aren't really intended to prevent acquisition. They're intended to prevent an inequitable acquisition via takeover where the existing shareholders might have to sue to get a fair treatment. E.g. elon getting enough control that he can pick the board (which takes less than 51% of the shares due to voting power effects)... then the elon controlled board agrees to sell the rest of the company for a less equitable price but not so outrageous that the other shareholders would have an easy time suing over it.

> What if there was some minority shareholder that the other owners disliked for some reason, could they force them out too? Or this power is restricted to particular circumstances?

Diluting out small share holders happens with some regularity in smaller companies. They could sue over it-- but it usually happens when there isn't a lot of value in the company itself and if they failed to push out an old shareholder the company wouldn't continue. So the party being diluted can only really choose between letting it happen or fighting it and getting their fair share of nothing minus legal expenses.

I find it hard to believe that would be the case, since it's needlessly discriminating against a single shareholder. The underlying game theory aspects mean that giving the hostile acquirer the warrants would be essentially irrelevant since they have no benefit in exercising them, while suffering the costs of doing so.

In short, there's no point in preventing elon from being able to purchase additional shares from the company below the acquisition offer because it would just be a waste of money for him.

> In general terms, it works by imposing a significant penalty upon any person or group that acquires 15 percent or more of the shares of Common Stock without the approval of the Board.

> the rights will become exercisable if an entity, person or group acquires beneficial ownership of 15% or more... in a transaction not approved by the Board

> each right will entitle its holder (other than the person... triggering the Rights Plan, whose rights will become void...) to purchase.... additional shares of common stock

The SEC filing is a bit dense but then if you scroll down to a bit you get

> entitle the holder thereof to purchase, for the Exercise Price, a number of shares of common stock of the person engaging in the transaction having a then-current market value of twice the Exercise Price.

[1] https://www.sec.gov/Archives/edgar/data/0001418091/000119312... [2] https://www.prnewswire.com/news-releases/twitter-adopts-limi...

I'm not entirely clear whether this statement in the 8K is legal. Seems to me that it would run afoul of the boards responsibilities, especially given that it is unnecessary to achieve the result.

It's just that since the strike price is lower than the price he is offering to buy the company at, other investors are better off exercising their warrants and then selling to elon.

The amount of ownership can change for one already owning 51% if the amount of stock issued changes - that changes the denominator

Finally: there is proxy voting. Normally common stock holders have 1 vote per share. However most votes are "proxy voted" where you give your vote to someone else because "reasons" - like you can't attend but an institutional investor seems to represent your position so you proxy to that investor.

Via proxy voting, it's possible to push past 51% as a minority shareholder.

Related to this, you can create an informal alliance with an institutional investor owning a larger share in the same company. This appears to be how Musk "borrowed" the money for his takeover - the money came from a large institutional investor that makes money on both ends: interest paid on the loan plus the promise of higher returns on Twitter stock. That's what's called a "can't lose investment" that no ideology can beat.

Of course, the Twitter board famously owns no significant amount of stock which is problematic but reality - this means they have ZERO skin in the game so are more likely to shirk (or risk to shirk) their legal obligations for fiduciary responsibilities. They apparently got a legal wake up call over the weekend about this however.

This is confusing. During the TWTR discussions, one that regularly came out is the importance of a board's fiduciary duty. Buying 51% doesn't let you take the company private, and merging at 50% of the price seems like a monumentally indefensible decision, especially when it is with the 51% holders company. I find it hard to believe you can get away with that.

Shares aren't a blockchain, you can't just perform a 51% attack.

https://www.lw.com/thoughtLeadership/the-latham-and-watkins-...

As others have mentioned, Twitter has a staggered board, meaning not all board members are up for election at the same time. Replacing the board would take years in a hostile takeover.

Patrick Boyle did a great video on this which is slightly less relevant now that the board has accepted the offer but still is a reasonable intro to corporate governance:

https://youtu.be/QXxeyOVpnCU

Can you please make your substantive points without name-calling? There's a site guideline that asks you to do just that.

"When disagreeing, please reply to the argument instead of calling names. 'That is idiotic; 1 + 1 is 2, not 3' can be shortened to '1 + 1 is 2, not 3."

https://news.ycombinator.com/newsguidelines.html

In spirit, this rule should hold even if you aren't attacking the author directly but are disparaging the value of their perspective.

That is simply unnecessary and you can just refute the point directly.

How is that worse than people literally calling each other's comments bullshit on HN?

Examples: https://news.ycombinator.com/item?id=6805295 https://news.ycombinator.com/item?id=5111959 https://news.ycombinator.com/item?id=6410617 .. and many more

Kind of like a microagression: https://en.wikipedia.org/wiki/Microaggression, I think...

Human language and idioms are hard to create rulesets for. Probably "name-calling" is too specific, but "microagression" may not be understood by all. However it is sad if we need to lawyer the guidelines.

However, in this context, calling their argument "utter nonsense" is utterly unnecessary and only serves to up the ante.

"When disagreeing, please reply to the argument instead of calling names. 'That is idiotic; 1 + 1 is 2, not 3' can be shortened to '1 + 1 is 2, not 3."

We don't want name-calling (in this sense) because it leads to dumber, nastier internet discussion.

It's also particularly easy to avoid. If you take out its first sentence, the GP comment loses nothing but hostility and becomes a far better HN contribution.

https://news.ycombinator.com/newsguidelines.html

I was pointing out to the commenter that while it was not technically as hominem, it is still not acceptable and doesn’t add anything to the discussion.

I suspect that none of what I said is easy or even likely- but I do believe the risk of such things is real and that's why the board set up a poison pill, to ensure they got a real deal and not something more aggressive.

Besides, when the 51% owner decides to merge at a lower price, can't other shareholders simply refuse to sell?

All this makes it sounds like shareholders have a lot less power than I used to think they had.

This is factually incorrect.

The poison pill is specifically designed to dilute the hostile actor's shares, while leaving everyone else mostly untouched (depending on the pill's mechanisms).

> The hostile actor could / would dump their shares after the hostile take over attempt. That would crash the price.

They could, but would they? This would hurt them, too, so it rarely happens. That being said, Musk certainly has enough money and pettiness to lose billions to prove a point, but very few hostile takeover investors have that much money to burn.

> Alternatively, the board would keep creating shares as the hostile actor attempted to buy more. Keeping the price the same or higher.

How would they prevent the market from devaluing the stock as more is printed? This is like govts trying to print more money, it leads to inflation.

> Else they’d open themselves to lawsuits anyway.

If the market thought Twitter had better plans for future profitability, they could be sued for the opposite, going with Musk. They can basically always be sued if enough shareholders think they're not doing a good job.

> He’d dump 10% and instantly the price would be down 40-60%, plus people would lose confidence and drop further.

Putting aside the likelihood hostile takeover investors would waste billions in spite, it seems unlikely that a failed takeover would change the stock price for longer than a news cycle. All the fundamentals are unchanged, so it's more likely the price would return to what it was before.

The important way to think about it is not price-per-share but price-per-percent. The share price on the market likely would fluctuate. It would be diluted as you pointed out, but if the attacker really wanted to own it, they're going to have to be the highest bidder on the market for a majority of the shares. They already have to over-value those shares, since that share that brings them >50% is WAY more valuable to them than every share leading up to it.

If Elon owned 15% and wanted to reach 50%, he has to buy 35% of the shares to reach control (50%). If you double the number of shares of existing shareholders but not Elon, then Elon would own 7.5%. Now he has to buy 42.5% of the company. Assuming the absolute value of the company didn't change, Elon will have had to buy 15%+42.5%=57.5 of the company just to buy what was 50% yesterday. This effectively adds a 7.5% premium to buy a controlling amount, and that premium is divided up among shareholders who sold out post poison pill.

Oh, and along the way, the demand to buy all those shares means that the attacker has to be the highest bidder. And that kind of demand would create a massive shift in the market. If enough of shareholders thought the price was too low, (or realistically a small fraction of them, since companies like index funds managers don't actively trade shares), they wouldn't sell to the attacker and the attack wouldn't be possible - so an attack has a huge upwards pressure on the price. every share gets more expensive than the last.

> it seems unlikely that a failed takeover would change the stock price for longer than a news cycle. All the fundamentals are unchanged, so it's more likely the price would return to what it was before.

Elon is basically a meme, just look at this tweets affect on the markets for things like crypto. Elon being associated with something makes it more valuable. When Elon announced he was getting involved and buying shares, they went up in price double-digit percents. If he said "jk i don't think twitter is valuable" AND dumped a huge load onto the market at once, the price would certainly crater for a while, even if, yes, one day it may return to "normal". But few investors would be happy to stomach that crash, especially since the board is judged in part on share price.

* technically you need >50%, but the math is way rounder and easy to rationalize to use 50 not 51.

* also, I don't know the details about the specific poison pill for twitter, but I'm just picking nice numbers for the math purposes

* this is also a big critique of passively managed funds economically - they limit the market dynamic and force buying/holding of companies that "the market" otherwise doesn't value

They don't. The deal has to be approved by shareholders (of stock with voting rights).

(If the board hadn't relented, Musk's next step would have been to arrange for a tender offer, which goes directly to the shareholders, but does not involved Musk acquiring new shares, but rather just a commitment to buy those shares if the board drops the poison pill. Successfully getting that commitment would be a very strong signal to the board, which would likely then drop the shareholder rights plan and allow the acquisition to proceed. But Twitter's board skipped those steps.)

That would have left the board in a very ugly spot, and politically in places like florida doubly so (destroying pension values / turning down a good offer for nothing etc etc)

The board is negotiating an approved takeover which is entirely different

I.e. the board was saying “you can only buy Twitter if we say so”

There was no reversal of intentions

> Twitter adopted a limited duration shareholder rights plan, often called a “poison pill,” a day after billionaire Elon Musk offered to buy the company for $43 billion, the company announced Friday.

https://www.cnbc.com/2022/04/15/twitter-board-adopts-poison-...

This seems to be what happened.

Major shareholders don't care who owns Twitter. They don't give permission. They only care about the return on their investments. They often represent limited partners or are part of a stock fund, and have their own fiduciary responsibilities. Or they just want to make their own money.

In this instance, major shareholders would go to the Board and say, "show me your plan to increase the stock price to over $54/share within 12 months." This could be by finding another buyer, having a roadmap to introduce new products/enter a new market, raise prices, or even acquire another company. Shareholders would evaluate the execution risk of said plan vs. the zero risk of "Elon gives me $54/share tomorrow" and decides what is best for them.

The shareholder then weighs in to the board: "I don't believe in your plan, if it comes to a vote I will vote in favor of Elon's offer." Repeat that for all of the major shareholders.

In this specific case, from everything I've read Twitter had no compelling roadmap, no other buyers willing to make an immediate offer, no strategy, troubled leadership, a 10% decline in stock price, and prevailing economic headwinds. No one believed they could beat Elon's offer.

So the board looks at the intent of the preponderance of the shareholders and rapidly realizes that they would lose any battle for control of the company. It would cause huge distraction and possibly open them up to lawsuits for not meeting their fiduciary responsibilities.

The board then goes back to Elon and decides to accept the offer.

For example, if you use META as the benchmark then Elon's offer is 143% of Twitter's all time high. Meta alone is perhaps not really the fairest benchmark, but his offer is 86% of the ATH if you just use the Nasdaq composite as a benchmark which is still pretty good. A fair 'synthetic twitter' would probably price the offer somewhere between these two.

I would have liked to produce a better synthetic benchmark than just those two options, but didn't really feel like doing two hours of programming and data collection just for a HN post-- what I would have done is grabbed the historical prices for all high volume US equities and ETFs and found a set of coefficients (including allowing negative ones, e.g. shorted stocks) for all equities except twitter that predicted twitter with the lowest L2 norm, and maybe applied some L0 penalty to make the collection sparse and reduce the overfit. Perhaps I'd just try all $stocks choose 5 subsets with 5 stocks and choose the best-- l2 fits are fast, and I doubt 5 stocks can meaningfully overfit a couple years of data.

Why is a benchmarked price the right way to reason about this? Because a substantial part of twitter's price is the overall market, a substantial portion is its sector, etc. To the extent the investors want that non-twitter-specific exposure they can get it in other ways (e.g. by buying synthetic twitter or just a market index).

If you could sell twitter today for 143% of the benchmark rate, then put the income into the benchmark then sell the benchmark later when its value goes up-- you'd do much better than just holding on to twitter for the same amount of time, unless something changed about twitter to make it perform a lot better relative to the benchmark.

From that perspective twitter's roadmap would need to be pretty good to overcome the offer.

There was no "negotiation" with the board. Elon just made an unsolicited offer and said take it or leave it. The board "left it" and yet here we are.

> If Elon had made a deal directly with the stockholders, that would have triggered the poison pill.

What? That's not how poison pills work. Poison pills exist to prevent hostile takeovers. It isn't there to prevent someone from talking to the stockholders. If the stockholders agree to the deal, it is no longer a hostile takeover.

> He surely spoke with and lobbied the stockholders for support, but the deal he agreed to was approved by the board.

Yes. The deal was first rejected by the board. And then the deal was approved by the board. Why do you think that was? What made the board change their minds? I wonder. You might have a point if elon raised his offer from $54.20 to a much higher number. But all reporting indicates he didn't change his offer.

Of course the deal was approved by the board. My point is that the shareholders made them approve the deal.

Source?? The deal was never rejected by the board. Instituting a poison pill was not a rejection. Twitter made it clear with the poison pill anouncement that they had not decided on Musks offer yet.

> The Rights Plan will reduce the likelihood that any entity, person or group gains control of Twitter through open market accumulation without paying all shareholders an appropriate control premium or without providing the Board sufficient time to make informed judgments and take actions that are in the best interests of shareholders,” the company said in a press release.

> Twitter noted that the rights plan would not prevent the board from accepting an acquisition offer if the board deems it in the best interests of the company and its shareholders.

https://www.cnbc.com/2022/04/15/twitter-board-adopts-poison-...

Shareholder pressure, which was rumored to include governors and ag's in states with pension investments in twitter who don't like twitter, was out there.

They risked a decline of twitter's stock price if Elon withdrew his offer AND sold his (largish) block of shares AND announced a competing service with some of his billions.

Twitter has its HQ in SF, but that doesn't mean it can blow florida pension money because they don't like musk.

So yes, the board, taking into consideration shareholders and their duty there, may have been in a tough spot. It certainly doesn't seem like they got any increase in price.

You really don't know how this works.

https://www.youtube.com/watch?v=98EzC_1GvGE

There have been tons of cases about this, where boards ignore rights of shareholders or those with minority interests.

Yeah, probably as qiskit suggested, because the major shareholders told the board to pull their heads in and take the money.

At least that’s my understanding.

Musk has spent the last days talking to other big shareholders as is widely reported in mainstream news. It's not some far fetched conspiracy theory.

Yes, technically it is correct that this combined shareholder pressure does not oblige the board to comply, but for sure this adds a ton of pressure. Even more so given the malperformance of Twitter as a company.

Add to that the weakness of the board which has zero founders, and none owning any meaningful amount of shares themselves.

1. https://www.reuters.com/business/exclusive-twitter-under-sha...

What happened? Simple. Large shareholders are in favor of the sale.

The board here doesn't "sell" Twitter. All they do is recommend to the shareholders to accept the offer. I mean it's not quite as simple as that because there are rules about making formal takeover offers and boards can (and do) negotiate with potential buyers who may exact conditions like not seeking other offers and so on.

But ultimately this is up to the shareholders and the board is just reflecting the will of those shareholders to sell.

Enough of the large shareholders behind the scenes backed the deal for whatever reason. Who, what and why? We'll never get the real story. Not in any newspaper, blog or whatever. I'm sure we'll get some fanciful stories, but that's all it'll be. Fanciful stories.

The board of directors aren't the ones that have the final say. It's the major shareholders. Usually, the major shareholders back the board of directors because they are the ones who elect/hire the board of directors. Somehow, Elon and his backers convinced enough of the big boys to back him instead of the board of directors. Simple as that. Maybe he offered them free a roadster, starlink setup or a seat on a future spacex mission to mars. Who knows. But elon outmaneuvered the board of directors somehow.

Yes they could. If literally 100% of the shareholders opposed the board, the board would lose indemnification from shareholder lawsuits for any actions it took, up to the difference in value between the tanking share price and Musk's offer. No effing way they would stay obstinately opposed in that case.

2) The valuation is not the only thing the board and Musk need to agree to. There are break up terms, ability to accept a higher offer if one materializes, liability in case of funding breakdowns, antitrust assurances, etc etc. So again, any leverage is useful.

The rumor is that the offer to be accepted is the same, so it wouldn’t have worked as intended, but that doesn’t mean it wasn’t worth trying.

It eventually drifted up, but you see other companies where a hostile takeover offer is cause to halt trading due to how fast the price spikes…. Which did not happen for Twitter. Twitter is not a “blue chip” stock which people expect stability from, perhaps even a gasp dividend… but nope, it’s a tech stock with none of that… yet is weirdly stable. That’s screams “complacency” to me and complacency is fertile ground for business, either by outside forces via hostile takeover and new management or a new disruption from a new market entrance. Given the network effect pressure it’s obvious that hostile takeover looks, at least from a “running the business” perspective, to be an obvious move.

Like many business decisions it just looks to me like “who will gamble on a bet this big”… and these days it’s individual billionaires who can afford to make bets like this. It’s a second golden age of capitalism, and I’m looking forward to the next Great Depression and the much needed cultural rest wth respect to assholes with too much money.

No, it's a reflection of uncertainty over whether it will happen. Present value is not the offer price, since it's not guaranteed, and also accounts for the time for the deal to close - $54 in a year isn't worth $54 today. Regulatory risk isn't a big deal here, but is elsewhere, like ATVI trading at a significant discount to MSFT's offer.

TWTR is up significantly today since there's a binding deal now.

There were doubts about the bid. Musk had no financing. Now he has financing. The market has moved.

If he’d come back last week with a “tee hee jk” tweet about buying Twitter, everyone would have taken it in stride and then mocked those who bought the rumour to get run over by the news.

[0] https://www.cnbc.com/2022/04/15/twitter-board-adopts-poison-...

Musks asks the board if he can buy Twitter.

The board institutes a poison pill to prevent any shenanigans while they consider the offer / to give them leverage.

The board decides to accept musk's offer. Musk did not have to do a hostile takeover by buying shares in the market, so the poison pill never triggered.

„Things that must be true if Twitter’s board is ready to accept @elonmusk’s offer:

1) they did a soft market check and there were no other bidders.

2) @Jack is on board.

3) the pressure campaign worked.“ (cont.)

https://twitter.com/davidsacks/status/1518623080557342720?s=...

4) as some of the comments have noted, earnings this quarter must also be underwhelming. The next earnings call is scheduled for Thursday.

https://en.wikipedia.org/wiki/Unocal_Corp._v._Mesa_Petroleum....

Basically a company can ONLY create a poison pill IF and ONLY IF:

* the tactics of the party doing the hostile takeover are "coercive"

* the hostile takeover will likely result in dissolution of the company

Neither applies to Twitter in any serious sense. Musk's methods are anything but coercive under the law per point #1. A change in direction or operations is NOT legally the same as point #2.

Additionaly, board members are required under law to maximize shareholder value under the rubrik of profit maximization (eBay vs. Newmark) and public company board members can be PERSONALLY legally liable for lost profits and punitive damages.

https://www.lexisnexis.com/community/casebrief/p/casebrief-e...

It's VERY LIKELY that the Twitter board was informed of these cases (again, hopefully - these are legal fundamentals of being on a corporate board you'd be stupid not to know ahead of time).

As a result the Twitter board appears to have "straightened up and are flying right" in terms of law and potential legal liability now.

Again: I'm utterly mystified that boards (especially in "Tech") do not seem to know basic stuff like this and let companies run riot in ways that puts both the board and executives at tremendous personal legal and financial risk.

A board can use the protection of a rights plan to respond to an underpriced bid, counter the tender offeror's timing and informational advantages, and force the hostile acquirer to negotiate with the board.

The truth is, that no, corporations do not have overriding fiduciary obligations to their shareholders in the simplistic way that you seem to be inferring. This cannot be legally enforced so expeditiously. You seem to be taking your position from youtube and political opinion pieces (e.g., reframing the vindictive and opportunistic threats of right-wing AGs) rather than corporate law.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1352595

The question of expeditious enforcement is a separate factor. Twitter is a Delaware corp so it's not as horrible as it would be elsewhere, but no question the enforcement side is less than ideal.

Also, not sure what you mean by “ideal”. You seem to be assuming an unstated ethical frame there.

What made this unique is that very early on there was relatively high profile interest from folks (DeSantis) who I'm guessing might try to make a point (they seem to be working towards a national profile vs just FL local). There is a naivete here that AG's offices are impartial in enforcement, they are often highly highly selective in enforcement efforts.

Securities litigation (broadly) has been going pretty strongly.

The parent comment I was engaging with had a substantive comment citing case law in this issue that at the time I commented was voted down.

Your article is also interesting.

My point was that this was trending towards a litmus test type political issue.

Elon was offering to let shareholders vote on the plan. Board was doing a) a poison pill, b) had a staggered board term setup, c) had the founder criticizing them, d) had some bumpy history and e) were faced with wading into an ugly political fight with poor optics given his offer.

So my own personal view is that Elon came with a surprising amount of leverage. What folks don't realize is that doing $43B deal at this speed is unusual.

If Elon buys Twitter, what happens to the board? Well, he can fire them all. They may prefer to remain board members, with the money and power that comes from that. So the poison pill, while it may be offered in the name of "protecting" the existing shareholders, is really a way for the existing board to remain in power.

But that won't work if the offer is good enough that the existing shareholders want to take it. Then the poison pill becomes something the shareholders don't like, because it prevented them from doing what they want. Depending on how badly the existing shareholders wanted the offer, the board may not remain in power that way either.

Note well: There may be details in the way all this went down that don't fit in my cynical little narrative. But absent knowledge of those details, this is my suspicion of what's really driving the poison pill.

The board includes karaoke maker, computer professor and a salesforce co coo. You might be on to something, I doubt many characters will find themselves on such a high profile board in the future.

As an aside, I have no direct proof but I'm convinced that Twitter is massively overvalued. The board could've just been fishing for a higher offer.

Unless twitter had some crazy annual report under its sleeve there was no way anyone was valuing it at over 54.20. That doesn’t mean that the board has to accept that offer and it doesn’t mean they have to take any Jack or Jill that makes that offer seriously. But it does mean if someone who can clearly afford it shows serious interest the deal will probably, at least possibly, happen.

The poison pill was never a rejection of the 54.20 or price. If you read something that gave you that impression go back and look up the author, and never read them again. They did you a disservice.

He secured financing for the deal.

They also probably wanted to buy time for a counter-offer to show up at a higher price.

This is a good piece (before Musk had secured the financing): https://www.bloomberg.com/opinion/articles/2022-04-20/elon-c...

> Another point I would make is that Twitter’s board is doing a decent job of (1) asking these questions and (2) forcing Musk to answer them. In a sense, launching a tender offer is a way for Musk to put pressure on the board to do a deal. But in another sense, forcing Musk to launch a tender offer is a way for the board to pressure him to find financing, which is a prerequisite to a deal and not something he would do on his own. In his own life, Musk is very casual about what counts as “funding secured,” as we know now from repeated experience. Writing a tender offer document will force him to be less casual.

> Broadly speaking, what has happened so far is (1) Musk offered the board $54.20 per share to buy Twitter, (2) the board said “show us the money,” and (3) Musk is working on it. If he comes up with the money, then the board will have to make some decisions, but right now the ball is in his court.

It however takes shareholders to want to buy more. Twitter is quite undefended. Poison pill was never going to be effective in any major way. At most they were going to delay the inevitable here.

The media coverage of the poison pill was pretty bad, this was not going to be effective at stopping anything. The bigger news is why is Twitter so undefended. It makes sense from Jack Dorsey's pov, he was backing off. However even a saudi prince incorrectly believed he still owned twitter stock. It's super unusual for a S&P500 company to be so undefended.

Yet worse, something that I have never seen happen, there are a ton of S&P500 companies that are undefended. This isn't true in other country indexes. What made the US stock market so offensive? I checked all my US holdings and somehow each of them are healthy with the only exception being Tyson. The stock market is going to blow up?

DOW is down -7% YTD. S&P500 is down -11% YTD. With inflation at 8.5%, those are down alot.

Wait, did I miss something on this? Last I had seen he still owned the stock but rejected Musk's offer.

https://twitter.com/zerohedge/status/1514747126210863108

He sold his shares in 2018.

What do you think made him sell in 2018 but still think he owned stock?

Musk did ask him a) how much stock the Kingdom owned, and b) their views on freedom of speech[0]

I didn't see a reply :)

[0] https://twitter.com/elonmusk/status/1514683079968931841

[1] https://twitter.com/elonmusk/status/1514718700674306052

This led Twitter's board to take his offer more seriously and many shareholders to ask the company not to let the opportunity for a deal slip away [2].

[1] https://www.sec.gov/Archives/edgar/data/1418091/000110465922...

[2] https://www.reuters.com/technology/exclusive-twitter-set-acc...

Musk has a flair for showmanship and a track record of converting memes into cash.

I think Elon Musk's Raodster[1] was the most amazing piece of cross-brand marketing in history. I couldn't even speculate how much it added to both Tesla and SpaceX valuations.

https://en.wikipedia.org/wiki/Elon_Musk%27s_Tesla_Roadster

It is artificial dilution, which in practice makes it possible for the board to cause heavy short-term losses to anyone attempting a hostile takeover: the market reaction to dilution is predictably a lowering of the going price of the stock unless the news comes with significant and credible hype about future profits.

The risk of this happening is what is thought to stave off the takeover.

This poison pill does not strengthen Twitter board members' ownership because they don't own much Twitter stock.

The poison pill left “Musk two main options. One is to negotiate with Twitter’s board and try to strike a friendly deal. This might be hard because the board probably wants more money than Musk is willing to pay, and also because there seem to be strategic and personal disagreements between Musk and the board that might make friendly negotiations difficult. ‘I am not playing the back-and-forth game,’ Musk said in his initial proposal; ‘I have moved straight to the end.’ That’s an annoying way to start negotiations.

His other option is to pressure the board into dropping the pill, and the classic way to do that is with a tender offer plus a proxy fight, as we discussed yesterday:

1. Musk can launch a tender offer to buy all of Twitter's stock for $54.20 in cash. (Or, of course, some higher number.) The tender offer is a public, binding document filed with the SEC, open to all shareholders, and it will be full of disclosures about his plans and, in particular, his financing. Shareholders will be able to read it and see if he has the money. If it looks like he does, then they will be able to decide if $54.20 is a good enough price. If they think it is, they will be able to tender into his offer, submitting their shares for purchase. He won’t be able to buy them, though, because of the poison pill; the tender offer will be contingent on getting rid of the pill. But if like 90% of shareholders tender into his offer, then that is an important public-relations victory; he can go to the board and say “your shareholders want this deal, let them take it.” And then the board might agree and get rid of the pill, and then the tender offer can close and he can buy the shares.

2. Meanwhile, he can also try to get shareholders to vote their shares in a way that gets rid of the pill. Classically, the way to do this is to run a proxy fight to kick out the existing directors and replace them with Musk’s chosen directors, who would get rid of the pill and let him close his deal. Musk can’t really do that here, because of Twitter’s corporate structure, but he can run some sort of informal symbolic proxy fight where he urges Twitter’s shareholders to vote against the directors who are up for election in May, or where he urges them to vote to declassify Twitter’s board so it’s easier to kick the directors out in the future. If 90% of shareholders vote with him for these things, that’s another sign to the board that the shareholders want his deal and should be allowed to take it.

These things do not work automatically; even if 90% of shareholders tendered into Musk’s offer and voted with him at the annual meeting, the board could still tell him to buzz off. It could easily do that if it found another bidder willing to pay a higher price, but it could also legally do that even without a higher bid; the law tends to defer to the board’s business judgment about whether or not to accept a merger offer. But most of the time directors care about what their shareholders think, and if all the shareholders want Musk’s $54.20 then it’s embarrassing for the board not to give it to them.” [1]

TL; DR The poison pill forces Musk to negotiate with the Board.

[1] https://www.bloomberg.com/opinion/articles/2022-04-20/elon-c...

The board are required to act in shareholders best interests. Taking poison pills is not usually in their interest. So you have to do it before their are a lot of shareholders (while you're still privately held) or you need a very good excuse. Doing it during a takeover is especially questionable. So the board would open themselves up to personal liability...

— Terry Pratchett, the Colour of Magic

Therefore, the board engaging with his bid to buy twitter, and the two of them only negotiating that way, was the goal. So it's not a 180.

The board was originally hesitant to engage because even Elon Musk could have a lot of trouble raising $44 billion in cash. They didn't want to agree to a deal that didn't go through (like trying to buy a house without cash or preapproval). He seems to have secured loans to actually pay for Twitter, so now they are seriously engaging.

It is ludicrous to believe that, even if this were true BEFORE the Musk bid came in, they were not consulting with corporate counsel AFTER and in conjunction with issuing the poison pill.

As others have said, it is frequently used as a negotiating tactic and will usually pop up somewhere along the way in any unsolicited takeover situation. Just like the simple act of saying "no" is often a negotiating tactic and not a true statement of someone's unwavering intent.

However they are quite happy to let Musk buy all of them out (owning 100%) at a reasonable price then let him do whatever marketshare-tanking moves he wishes. They don’t actually care about the fate of the company, they just don’t want to lose money.

Elon's next move was a tender offer which put the issue in front of shareholders for an up/down vote on a full buyout, which would sidestep any board poison pil.

Plus even if Elon really wants all 100% for reasons, the bank providing funding would certainly want him to consider any cheaper options since it's (nearly) the same gain for them but less risk to finance buying 51% vs 100%.