April 19, 2022
Poison Pills: Twitter Opts for Plain Vanilla
Twitter filed its shareholder rights plan with the SEC yesterday and it’s pretty boring. There aren’t any aggressive twists on the definition of beneficial ownership or express “acting in concert” language. Also, because the pill has a 15% ownership threshold, there isn’t a “passive investor” exemption for 13G filers – that’s a feature that’s typically found in low threshold (e.g., 5% beneficial ownership) pills.
Twitter’s Form 8-A filing for the pill includes a description of the securities that makes it clear that the pill is very traditional in terms of its mechanics. It includes a flip-in and flip-over feature, as well as a “last look” provision allowing the board 10 business days after a bidder crosses the 15% beneficial ownership threshold to redeem the pill. The board also has the ability to exchange each preferred share purchase right for a share of Twitter stock.
This exchange right proved to be an important feature in the Selectica situation, which is still the only meaningful example of the intentional triggering of a poison pill. In that case, the board opted to exercise the exchange right, which although less dilutive to the bidder, eliminated the uncertainty about how many shareholders would be willing to actually exercise the rights, which would involve cutting checks for real money. After it exercised the exchange right, Selectica promptly adopted a new pill, so the difference in potential dilution between the exchange and full exercise of the rights under the initial pill didn’t amount to much in the grand scheme of things.
Elon was making weird allusions to a possible tender offer on his own Twitter account over the weekend. He could still do that, but he’d reach uncharted heights of recklessness if he launched one that wasn’t conditioned on the pill being pulled.
If you’re interested in finding out more on the terms of recent poison pills, check out our Poison Pills Practice Area. In particular, you should take a look at this CII report on 2020-21 pills, and this Morrison & Foerster report on 2020 pill adoptions.
– John Jenkins