Twitter Embraces ‘Poison Pill’ Strategy As Musk’s Challenger Appears

Twitter Inc (TWTR.N) adopted a ‘poison pill’ on April 15 to cap Elon Musk’s ability to raise his stake in the social media platform after a buyout company came up to challenge Musk’s $43 billion bid for the firm.

People familiar with the matter said, Thoma Bravo, a technology-focused private equity firm that had over $103 billion in assets under management by the end of December 2021, has told Twitter that it is examining the possibility of putting together a bid.

Asking not to be identified because the matter is confidential, the sources cautioned that there is no certainty that such a rival bid will materialize and it is not clear how much Thoma Bravo would be prepared to offer.

While Twitter representatives did not immediately respond to a request for comment, a Thoma Bravo spokesperson also declined to comment. Thoma Bravo was considering a bid for Twitter, the New York Post reported on April 14.

To dilute anyone amassing more than a 15% stake in the company by selling more shares to other shareholders at a discount, Twitter said on Friday that it had adopted a poison pill. The poison pill, known formally as a shareholders’ rights plan, will be in place for 364 days.

Musk would not be barred by the move from taking his offer directly to the Twitter shareholders. He can do that by launching a tender offer. The tender offer would allow most Twitter shareholders to register their support or disapproval of Musk’s offer despite the poison pill preventing them from selling their shares.

Analysts Comment On The Twitter Takeover Saga

Dan Ives, a Wedbush analyst, tweeted on Friday:

“It is a predictable defensive measure for the board to go down that will not be viewed positively by shareholders given the potential dilution and acquisition unfriendly move.”

The specter of more private equity firms vying for Twitter is raised by Thoma Bravo’s interest. According to data provider Preqin, the global private equity industry is sitting on about $1.8 trillion in dry powder. Most buyout firms would not encounter antitrust restrictions in acquiring Twitter, unlike major technology conglomerates.

It remains possible that a private equity firm will strengthen Musk’s bid by joining forces with him instead of challenging him. However, several private equity firms are concerned about teaming up with Musk due to his criticism of Twitter’s reliance on advertising for most of its revenue, industry sources said. This is because financing a leveraged buyout is much easier with a strong cash flow that it makes.

A natural partner for Musk would be Silver Lake, a private equity firm with more than $90 billion in assets under management, as it offered financing for his $72-billion bid for Tesla Inc (TSLA.O) four years ago, which Musk eventually abandoned. Egon Durban, Silver Lake’s co-chief executive, also sits on Twitter’s board.

However, when Twitter’s board met to discuss Musk’s offer for the first time on Thursday, people familiar with the matter said, Durban, did not recuse himself, in a sign that Silver Lake has not sought to make a bid of its own or team up with Musk this far.

The possibility that Silver Lake will choose to become involved as a buyer remains likely. A spokesperson of Silver Lake failed to immediately respond to a request for comment on Friday.

‘BEST AND FINAL OFFER’

Providing some comfort to banks considering whether they should provide debt for a deal, Twitter has an annual cash flow of close to $700 million and it has more than $6 billion of cash on its balance sheet. Yet, a leveraged buyout for Twitter could be the biggest of all time, potentially requiring the collaboration of several buyout firms and other major institutional investors.

With a net worth pegged by Forbes at $265 billion, Musk is the world’s richest person. Regardless, he has drawn a line on how much he is willing to pay. On April 13 he informed Twitter that his $54.20-per-share all-cash bid for the company was his “best and final offer”.

He then insisted that if it was rejected, he would reconsider his position as a Twitter shareholder. After mutual fund giant Vanguard, Musk is the largest shareholder, with more than a 9% stake in Twitter.

On April 14, Musk tweeted that Twitter’s shareholders should comment on his offer and posted a poll on Twitter in which most users agreed with him. Musk’s offer is still being assessed by Twitter’s board and would only be put to the company’s shareholders for a vote if it approves it.

Twitter Share prices fell on Thursday, suggesting that most investors expect Musk’s bid to be rejected as inadequate and thin on financing details by the company’s board.

Sources familiar with the matter said the company’s board is expected to take several extra days to assess Musk’s bid and draft its response. The sources added that an outcome over the weekend is unlikely.

Twitter’s board is being advised by Goldman Sachs Group Inc (GS.N) on its deliberations. JPMorgan Chase Co Inc (JPM.N) had been tapped by the board as a second financial adviser, Bloomberg News reported on Friday.