Twitter has unveiled its counterattack against Elon Musk.
In a board statement issued Friday, it said it would adopt a "poison pill" measure in an attempt to block a takeover bid by the world's richest man.
Developed to repel corporate raiders, the strategy would flood the market with new shares if Musk, or any other individual or group working together, bought 15 per cent or more of Twitter's shares.
That would immediately reduce Musk's stake (and that of other shareholders - hence the use of "poison"), making it significantly more difficult to buy up a sizable potion of the company.
The Tesla CEO currently owns more than 9 per cent of the company's stock.
In late trading, Twitter's NYSE-listed shares were down 1.7 per cent to US$45.08 for a US$34.4 billion market cap - indicating some investors are now dubious a takeover can get over the line, or fear the poison pill's dilutive effect. Musk has offered US$54.20 per share, valuing the company at more than US$43b.
The goal of the poison pill is to force anyone trying to acquire the company to negotiate directly with the board.
Investors rarely try to break through a poison pill threshold, securities experts say, with the caveat that Musk rarely abides by precedent.
Twitter said the move, formally called a "limited duration shareholder rights plan," aims to enable its investors to "realize the full value of their investment".
Even with the poison pill provision in place, Musk could still take over the company with a proxy fight by voting out the current directors.
Twitter said the plan doesn't prevent the board from engaging with parties or accepting an acquisition proposal if it's in the company's "best interests."
Twitter had revealed in a securities filing Thursday that Musk offered to buy the company outright for more than US$43 billion, saying the social media platform "needs to be transformed as a private company" in order to build trust with its users.
"I believe free speech is a societal imperative for a functioning democracy," Musk said in the filing. "I now realize the company will neither thrive nor serve this societal imperative in its current form."
Later on Thursday, during an onstage interview at the TED 2022 conference, he went even broader: "Having a public platform that is maximally trusted and broadly inclusive is extremely important to the future of civilization."
Musk revealed in regulatory filings over recent weeks that he'd been buying Twitter shares in almost daily batches starting Jan. 31, ending up with a stake of about 9 per cent. Only Vanguard Group controls more Twitter shares. A lawsuit filed Tuesday in New York federal court alleged that Musk illegally delayed disclosing his stake in the social media company so he could buy more shares at lower prices.
After Musk announced his stake, Twitter quickly offered him a seat on its board on the condition that he would limit his purchases to no more than 14.9 per cent of the company's outstanding stock. But the company said five days later that Musk had declined.
A poison pill path is a "predictable" defensive manoeuvre, although it could be seen as a "sign of weakness" and viewed unfavourably on Wall Street, Wedbush Securities analyst Daniel Ives said in an emailed note.
With reporting by AP
