Even if Twitter’s board rejects Elon Musk’s proposal to buy the company, Musk could still target stockholders by either seeking proxy votes or purchasing their shares in a so-called “hostile takeover,” thus taking over the company.
A hostile takeover occurs when an outside entity tries to take over a company without the management’s consent.
On Thursday morning, Musk tendered an offer of $54.20 per share; the current market price of Twitter is $45.85 per share. Musk could make that offer directly to shareholders if Twitter’s board rejects the offer. “Investopedia notes that shareholders often accept the tender offer when it is a ‘sufficient premium to market value or if they are unhappy with current management,” the Daily Mail noted.
Another avenue Musk could take: encouraging stockholders to urge other stockholders to let them use their proxy votes, then, having gathered enough proxies, having them vote to accept Musk’s offer.
But Twitter could conceivably respond by issuing blank check preferred stock to defend itself from a hostile takeover.
Blank check preferred stock is a method companies use to simplify the process of creating new classes of preferred stock and to raise additional funds from sophisticated investors without obtaining separate shareholder approval. In effect, a company’s shareholders pre-approve the new class to be issued at some point in the future, and then the firm’s board of directors (BoD) has broad discretion in when and how to issue them. This kind of stock can also be created by a public company as a takeover defense in the event of a hostile bid for the company.
“To do issue blank check preferred stock, a company must amend its articles of incorporation to create a new class of unissued shares of preferred stock whose terms and conditions may be expressly determined by the company’s board of directors,” Investopedia adds.
“Twitter doesn’t have the dual-share classes that many public tech companies (Meta, Alphabet, Snap) do,” Forbes noted. “Those systems leave voting rights—control—with a company’s founders, protecting them against a Musk. Without this, Twitter could adopt a so-called poison pill plan, a costly move where it sells stock at a discount to dilute an aggressive shareholder’s stake.”
Analyst Dan Ives told The Washington Post, “The next step will be Twitter’s Board officially reviewing the Musk filing/letter and then it’s get-out-the-popcorn time as we expect many twists and turns in the weeks ahead as Twitter and Musk walk down this marriage path.”
According to an SEC filing submitted Wednesday evening, Musk told Twitter Chairman Bret Taylor:
I am offering to buy 100% of Twitter for $54.20 per share in cash, a 54% premium over the day before I began investing in Twitter and a 38% premium over the day before my investment was publicly announced. My offer is my best and final offer and if it is not accepted, I would need to reconsider my position as a shareholder. Twitter has extraordinary potential. I will unlock it.