Listed companies can use so-called “poison pills” to defend themselves against takeover attempts by shareholders. In most cases, the management board is concerned with making the planned takeover so expensive that it no longer makes economic sense for investors who perceive it as hostile – and they then give it up. First of all, the offered purchase price is usually rejected as too low.
“White Knight” or other new shareholders wanted
We are looking for new shareholders who will get involved because they also consider the price of the undesired provider to be too low. The share price should rise sharply as a result, so that the first takeover bid has to be improved significantly.
Another possibility is that existing shareholders join forces to jointly reject the offer. Voting rights are collected for this. With a blocking minority of more than 25 percent, proposed changes can be rejected. The old management can then assert itself. Ideally, a new major shareholder acts as a so-called “white knight” and manages to ward off the hostile takeover together with others.
Other possibilities are mergers or new commitments
If the stock market does not succeed in fending off a hostile takeover bid with the help of other shareholders, management still has a number of other options. Creativity knows no limits. For example, a common antidote is to flee into a fusion.
In the case of Twitter, for example, a takeover by another larger social network would be conceivable. As part of Meta, Elon Musk could no longer take over Twitter alone because he would then have to buy the entire Meta group at the same time. On the other hand, Twitter would then have to serve themselves to Meta boss Mark Zuckerberg.
Twitter itself could try to become unattractive
New debts from large investments or other financial obligations that would make a purchase of Twitter no longer so attractive for Musk would also be conceivable. Twitter would have to find a partner for this or take over another company itself. The crucial point would be not to respond to Musk’s current criticism of the previous management, but to do the opposite of what he wants.
Musk criticizes Twitter for not using its potential as a social network properly and for not being economically successful. Above all, Musk is demanding an end to all usage restrictions.
Prevent Donald Trump’s return to Twitter
The best-known example is the suspension of former US President Donald Trump from Twitter, which permanently blocked Trump’s account after the storming of the Capitol because of the risk of inciting violence. The former US President was always very successful with his tweets and attracted maximum attention. The statements by Elon Musk, who himself gets a lot of attention with his tweets, suggest that he thinks Donald Trump’s exclusion is wrong.
If Twitter were to commit itself to even stricter terms of use and even negotiate this bindingly with US authorities, Musk’s attractiveness could disappear completely.
Poison pills should not lead to suicide either
On the other hand, the poison pills against hostile takeovers should not lead to corporate ruin. A publicly traded company cannot simply harm itself just to prevent a takeover. That would not only be economically questionable, but also counterproductive.
The market value measured by the share price must not fall as a result of possible self-restraints, because that would facilitate the unwanted takeover instead of preventing it. The enemy buyer would then get the shares at a greatly reduced price and could completely realign the company after the takeover. The old management would be fired and all unwanted measures would be put in place afterwards.
For the Management Board, defending against a hostile takeover is always a dangerous tightrope walk in which no crucial mistakes can be made. In the end, it often comes down to an agreement. Even if the resistance may be very great at the beginning, in the end business sense should prevail and lead to an amicable solution.
Musk’s offer for Twitter doesn’t seem attractive enough
In the case of Musk and Twitter, however, there are many concerns as to whether the Tesla boss is actually serious and is willing to pay significantly more if necessary. It could also be that, as with Bitcoin, Musk primarily wanted to attract attention himself without ultimately taking the decisive step.
The announced takeover of Twitter could end in the same way as payment with Bitcoin, which Musk quickly backed away from after initial problems with customers’ payment difficulties.
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