Whether Twitter’s board was right to have adopted a poison pill is one thing (spoiler: no), but whether it was within its legal rights to have done so is quite another. We may yet discover whether its decision will survive legal scrutiny. Twitter is a Delaware company, and, only last year, Delaware’s Supreme Court upheld a lower court’s ruling striking down a poison pill activated by the Williams Companies. The facts of that case were unusual, both in the draconian way in which that particular pill was structured (it was much tougher than Twitter’s) and in the somewhat hypothetical justification for it.
Nevertheless, the fact that the Williams board’s decision was overruled was a reminder that boards do not have unlimited discretion in this area. That said, it remains the case that Delaware courts, like those in many other jurisdictions, are generally unwilling to substitute their judgment for that of a board. When it comes to Twitter’s board, the burden of proof to show that it was not acting in a way that could be reasonably considered to be in the company’s best interests would effectively rest with Elon Musk.
So far as “best interests” are concerned, trying to get a better deal, whether from Musk or some third party (it’s worth noting that buyout firm Thoma Bravo has reportedly approached Twitter expressing interest in putting a bid together), would almost certainly do the trick. So far as Musk’s proposal is concerned, that would be so despite Musk having described it as his “best and final offer” (he would not be the first bidder in a possible takeover to have said that) and his also having dropped a clear hint that he might sell his holding in the company if his proposed deal does not go through. Musk is Twitter’s second-largest shareholder and if he were to sell his stock, the effect on the Twitter share price (as the board will be aware) might well be one that angers many shareholders, as Musk’s offer ($54.20) is considerably above where the stock closed on Thursday ($45.08). Their anger would be likely to be increased by suspicions that the board’s real reason for trying to torpedo Musk’s deal is unrelated to shareholder value. On the other hand, there are questions about how Musk would finance a takeover (he has said that he has sufficient assets, and that he “can do it”).
The board could also point to the fact that Twitter was trading at some $70 a year ago, meaning that Musk would be getting the stock on the cheap, even at $54.20, an argument that stock analysts might question, but a court most likely would not.
The fact that the board has put this poison pill in place without shareholder approval looks, of course, terrible, particularly in the context of a possible takeover revolving, in many respects, around the suppression of opinion, but — like it or not (I don’t) — it is something that it is entitled to do.
Writs will doubtless fly, but I doubt if they will change anything soon, if ever.
Musk has said that he has a Plan B in the event his proposal is rejected. If he does, he may need to deploy it.