Twitter’s Poison Pill and Gab’s Offer to Elon Musk

A previous article discussed Elon Musk’s offer to buy most outstanding Twitter shares he doesn’t already own at a significant premium to its current market value.

In response to prevent his gaining control of the company, Twitter’s board unanimously adopted a limited duration shareholder rights plan, a so-called (hard to swallow) poison pill.

It’ll remain in place until expires on April 14, 2023.

The strategy aims to prevent a firm’s hostile takeover by making it appear less attractive to a potential buyer’s so-called bear hug.

The latter involves offering a much higher price than the target company’s current market value.

As a defense against hostile takeovers, poison pills usually work.

They let current shareholders by additional shares of a targeted company’s stock at a discount.

It’s to dilute the equity value of the stock to make it less attractive to a potential buyer.

Or conversely to get a higher price than was offered from the suitor or potential others.

At the same time, poison pills discourage institutional investors from buying shares in a firm with aggressive defenses.

And by diluting market value, current shareholders are adversely affected.

Still at this time, Twitter is in play.

In after hours trading ahead of Good Friday, Twitter closed at $46.66 a share — up $3.50 after being down nearly 2% at the closing bell.

Musk’s offer may be followed by others, perhaps at a premium to what he proposed, a so-called white knight strategy.

While he called his offer “best and final,” he could raise it to compete with other takeover bids.

Saying if Twitter rejects his offer he has a Plan B in mind, he stopped short of explaining it.

In response to the above, Gab.com urged Musk to choose an alternative option.

Calling itself “a social network that champions free speech, individual liberty and the free flow of information online, it said the following:

“Twitter has legacy problems that Gab doesn’t.” 

“They are fully dependent on third-party infrastructure. We are not.”

“We ‘built our own, everything…our own servers, our own email services, our own payment processor, and so much more…”

“Hosting, email services, analytics tools, ecommerce, payment processing, all of it. We built it all.”

“(B)ringing free speech to Twitter isn’t as simple as buying it.” 

“Apple and Google do not allow free speech, so if you stop the censorship they will kick Twitter from both app stores.” 

“We already solved that problem and overcame it.”

“Twitter operates in countries where mass censorship is required by law.” 

“They have no choice but to comply with the censorship demands of those countries or risk being shut down, fines, etc.”

“Gab’s business model is not 100% dependent on advertising” like Twitter’s.

Its poison pill strategy reflects opposition to Musk’s takeover bid.

Gab made Musk a counteroffer.

Building its own “everything” fell short of its own ISP to provide internet connections and services.

According to Gab CEO Andrew Musk by letter to Musk:

“(T)o provide a free speech platform you must also have free speech internet infrastructure.”

“I fear that the next big leap of censorship is at the ISP level, with ISP’s blocking access to Gab.com.”

“You solve that problem with Starlink.” 

“Together we can build infrastructure for a free speech internet.”

“I am willing to offer you a Board seat along with equity in the company in exchange for you selling your Twitter position and investing $2B into Gab.” 

“My offer is my best and final offer.”

“Gab has extraordinary potential.  Let’s unlock it together.”

I don’t know if Musk responded to Torba so far.

It remains to be seen if he’s interested, especially since his attempted takeover of Twitter may not succeed.