The ULTIMATE GUIDE ABOUT POISON PILL STRATEGY ?

What is a Poison Pill Strategy?

A shareholder rights plan was formerly known as a “poison pill” which is a type of defensive tactic used by a Cooperative board of directors against a takeover.

In the field of acquisitions and mergers, the shareholder rights plan was invented in the early 1980s. As a way to prevent takeover bids.By taking away a shareholder’s right to negotiate a price for the sale of shares directly.

Typically, a shareholder rights plan gives the right to shareholders to buy more shares at a discounted price. If one shareholder of a company buys a certain percentage or more of the company’s shares then a shareholder rights plan could be triggered. for example, if one shareholder buys 20% of the company’s shares, at some point every shareholder (except the one shareholder who possesses 20% of the shares) will have the right to buy a new issue of shares at a discounted price. If all other shareholders are able to buy more shares at a discounted price, such purchases will dilute the bidder’s interest, and substantially the cost of the bid would rise. Knowing the poison pill strategy implemented, then the bidder could not be to take over the company without the board’s approval. The Poison Pill strategy can be issued by the board of directors as an “Option” or a “Warrant”  to existing shares, and only be revoked at the Knowledge of the board.

Understanding Poison Pill Strategies? 

Poison pill strategies are important in any company because they can help protect a company’s shareholders from a hostile takeover. A poison pill is a defensive measure that a company can take to stop a takeover by another company.

There are a few different types of poison pills that a company can use. The most common type is a share buyback. When a company buys back its own shares, it is signalling to the market that it is not interested in being bought out. Another type of poison pill is a rights offering. This is when a company sells extra rights, such as voting rights or the right to appoint directors, to its shareholders in order to protect them from being bought out.

Poison pills can also take the form of restrictions on how much a takeover target can pay for a share. For example, a company might limit the number of shares that a potential takeover target can buy. 

What are the Types of these strategies?

There are four main types of poison pill strategy:

1. The first type is the most common, and it’s known as the “flip-in.” With this strategy, shareholders are given the right to buy more shares at a discounted price if a hostile takeover attempt occurs.

2. The second type is called the “flip-over.” With this strategy, shareholders are given the right to buy shares of the company that is attempting a hostile takeover.

3. The third type is known as the “redeemable preferred stock.” This type of poison pill gives shareholders the right to redeem their shares for cash or property if a hostile takeover attempt occurs.

4. The fourth and final type is known as the “standstill agreement.” This strategy puts a limit on the number of shares a shareholder holds.

Why are poison pill strategies used?

There are many reasons why poison pill strategies are used in business. Poison pill strategies are simply a way to protect a company’s key assets from being acquired by another company. Often, poison pill strategies are used to protect a company’s intellectual property, its patents, or its market share.

Poison pill strategies can also be used to protect a company’s management team. If a company’s key assets are acquired by another company, the new company may not want to appoint the same management team to run the company. By using a poison pill strategy, the management team can ensure that it retains control over the company.

Poison pill strategies can also be used to protect a company’s customers. If a company’s key assets are acquired by another company, the new company may not want to keep the company’s customers. By using a poison pill strategy, the company can ensure that its customers are protected. Finally, poison pill strategies can be used to protect a company’s shareholders when a takeover occurs.

Why did it come into existence now?

                    At present times, The world’s richest man, Elon Musk was Trying to buy Twitter but the Twitter Board disobeyed the offer given by Elon Musk. But there is a possibility for Elon Musk to takeover Twitter by buying all the shareholder’s shares. And for this, Twitter has invoked an old strategy called the poison pill which makes its existence.

                         Poison pill strategy is a term used in the industry of corporate finance to describe a defensive action taken by a company in order to prevent its stock from being sold at a lower price to a competitor. The term is derived from the practice of companies placing “poison pills” into their shares—pieces of legislation or bylaws that would automatically dissolve the company if certain conditions were not met. The use of poison pills is meant to protect the company’s shareholders from being taken advantage of by a rival and to give the company a fighting chance in the event that it is acquired. 

How did Musk react to Twitter’s Announcement?

Elon Musk seems that he will never lose his interest in buying Twitter. 

Elon Musk has been very outspoken about his dislike for Twitter, He wants to own it and wants to change it. He has even gone as far as to say that the platform is a cesspool of awfulness. He wrote, “I am excited about the potential of this. Twitter has been trying to do something like this for years.” He also added that he would “continue to use Twitter, but I think its future is as a service that helps you follow the big trends and news in the world.” 

Musk wants Free speech on Social platforms which makes him buy Twitter.

Elon Musk was offered  $54.20 for a share — valuing the firm at roughly $44 billion which is a bigger offer ever to Twitter.

What is Twitter’s poison pill strategy? Why did Twitter adopt it?

Twitter has adopted a poison pill strategy to protect its shareholders from unwanted takeover attempts. The strategy consists of a number of measures, including a limit on the number of shares that can be sold by a single investor, a requirement that a takeover offer is approved by a majority of shareholders, and a provision that allows the board to reject a takeover proposal if it believes that it would not be in the best interests of Twitter or its shareholders. 

Twitter has been a public company for less than a year, and it’s already facing a major test.

On Friday, the social media company announced that it would be adopting a “poison pill” defence in order to prevent a hostile takeover by activist investors.

The poison pill, also known as a shareholder rights plan, is a common tactic used by public companies to make a potential takeover less attractive to investors.

In Twitter’s case, the poison pill would kick in if an investor acquires more than 10% of the company’s stock.

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Why does Musk want to buy Twitter?

There are a few reasons why Elon Musk might want to buy Twitter.

 First, as a social media platform, Twitter is a powerful tool for disseminating information and building a following. For someone like Musk, who is constantly innovating and building new businesses, Twitter is a valuable tool for getting the word out about his latest projects.

Second, Twitter has a lot of data that could be useful to Musk and his businesses. Twitter knows a lot about its users, what they’re interested in, and how they interact with the world. This data could be used to help Musk’s businesses better understand their customers and target their marketing efforts.

Conclusion

Elon Musk has finally Owned Twitter after a weeks-long discussion during which he first became the company’s largest shareholder, then offered to buy.

The world’s richest person, Elon Musk secured a deal on Monday, agreeing to buy the social network Twitter for $54.20 a share — valuing the firm at roughly $44 billion. 

What comes next for Twitter is the question. Over the past few weeks, Elon Musk has hinted at the changes he would like to see on the Twitter platform, which makes everyone know that Twitter was changing a lot.

In a statement, he released that after the deal was reached, Musk called Twitter “the digital town square where matters vital to the future of humanity are debated” and said he looks forward to the company’s “tremendous potential.”