Twitter has indicated that it's not interested in being bought by the world's richest man without a fight.
The social network's board made a defensive maneuver that could thwart Elon Musk's takeover bid, but he still has a range of options that suggest this Silicon Valley showdown is likely far from over.
Twitter's board said on Friday it was implementing a shareholder rights plan, known as a "poison pill," that would make it harder and more expensive for Musk (or any other would-be buyer) to acquire the company without the board's approval.
The plan came a day after Musk made an offer to acquire all the shares in Twitter (TWTR) he does not own for $54.20 a piece, valuing the company at around $41 billion. That represents a 38% premium over Twitter's closing share price the day before Musk's large ownership stake was revealed.
The poison pill plan, detailed in a filing with the Securities and Exchange Commission on Monday, will remain in place for nearly a year and will be triggered if Musk (or any other investor) expands his stake in the company to 15%; he currently owns around 9% of shares. It would give all other shareholders the right to buy one additional share for each share they own at a discount.
While other shareholders executing their rights to buy new stock under the plan would have to pay $210 for each new share they purchased, Musk (or another hostile investor) would have to pay $420. (Twitter's team proved Musk isn't the only one capable of spicing up a serious corporate standoff with marijuana references.)
Now, eyes are back on Musk to see how he might respond to the board's defensive measure.
"This all now becomes 'a game of high stakes poker' between Musk and Twitter's Board with this upcoming week likely an eventful one as we expect to formally hear from both parties on their next move in this MMA battle for Twitter," Wedbush analyst Dan Ives said in an investor note Sunday.
With the poison pill making the prospect of a Twitter takeover more challenging for Musk, he could decide to withdraw his bid, sit tight and exercise the still-significant influence he'd have at the company as one of its largest shareholders.
But for Musk — who said just last week that he doesn't like to lose — that may be an unlikely course of action. Musk said in his acquisition offer letter: "I don't have confidence in management nor do I believe I can drive the necessary change [at Twitter] in the public market," and added that he might reconsider his position as a shareholder if the board rejects his offer.
Musk said in an interview at the TED conference last week that he has a "Plan B" if his bid falls through, although he declined to elaborate on what it is.
Will he launch a tender offer?
The media and industry experts have been breathlessly following Musk's Twitter feed for possible clues about his next moves, a testament to the unusual nature of the situation. Some wondered whether his tweet on Saturday with the phrase "love me tender" was a hint that he's considering circumventing Twitter's board by offering to buy up shares en masse directly from other shareholders through a tender offer. (Alternatively, he might have just been on an Elvis kick this weekend.)
A tender offer could potentially be another trigger for the poison pill. However, Musk could launch a conditional tender offer, making the sale of the shares contingent on the Twitter board withdrawing the pill, said Ele Klein, partner and head of the M&A and Securities Group at law firm Schulte, Roth & Zabel.
"The theory of that is that if shareholders tender to that condition, he hasn't violated the poison pill because he's not closing it ... and if enough people tender he can say to the company, 'Look, I have the shares ready to be given to me, the only reason they can't is because you, the board, is blocking the will of the shareholders," Klein said.
Will he negotiate with Twitter's board?
Musk could also respond to the poison pill by laying out his financing for the deal and future plans for the company, in an effort to gain support from Twitter's board for his offer. The poison pill filing states that the plan is meant to "protect stockholders from coercive or otherwise unfair takeover tactics" but would not "interfere with any merger, tender or exchange offer or other business combination approved by the Board."
"Given Musk's antics over the years as well as comments at last week's TED conference, [Wall] Street remains skeptical on this bid and more details need to be highlighted to get more investors on board and increase pressure on the Board," Ives said in his Sunday note.
He could make his offer more compelling by partnering with a private equity firm on the bid, which would help clarify how the deal would be financed, and potentially upping his offer price, according to M&A experts. Some followers of the saga have suggested that Musk could team up with technology investment firm Silver Lake, which worked with Musk on his unsuccessful proposal to take Tesla private in 2018, although the fact the firm's co-CEO, Egon Durban, sits on Twitter's board could complicate matters.
Asset management and lending firm Apollo Global Management has been contacted by several parties considering bids for Twitter about potentially assisting with financing a deal, a source familiar with the firm confirmed to CNN Business Monday. It's not clear whether those are parties to a Musk-connected offer or other bidders. (The Wall Street Journal first reported Apollo's potential involvement Monday.)
Still, such a scenario could present challenges because Musk and a potential private equity partner would have to agree on the future vision and strategy for Twitter.
"The board would probably have to consider this if a higher offer came in with partners," said George Geis, a professor of strategy at UCLA Anderson. But, he added, "if there are additional partners, they all have to agree on what they're going to do with Twitter strategically and it's an extraordinarily complicated environment, given the political dimension of the transaction and the extent to which [Musk believes] opinions should be able to be expressed on the site."
Will the fight escalate?
In a far less friendly move, Musk could sue Twitter's board over the poison pill, accusing it of not acting in the best interests of shareholders, although that would likely become a drawn out fight. (And Musk's delay in disclosing his large stake in Twitter, which the SEC could take issue with, probably wouldn't help his argument.)
Musk could also simply attempt to continue pressuring Twitter's board from the outside to accept his deal, something he repeatedly did on Twitter over the weekend.
"He can keep saying, 'Shareholders want this, why are you standing in the way of it?'" Klein said.
In the meantime, in addition to continuing to review Musk's offer, Twitter's board may be fielding or soliciting offers from other potential bidders. Reuters reported on Friday that buyout firm Thoma Bravo had approached Twitter about potentially making its own acquisition bid to rival Musk's.
From the surprise disclosure of Musk's stake and the whiplash of his acceptance and then quick withdrawal of a position on Twitter's board to his very public offer to buy the company, little has been textbook in his approach and a prolonged battle would feel almost anticlimactic.
"It's a daily saga and it's so much unpredictability, given the potential acquirer [Musk] and what he might do," Geis said. "Above all, it's going to be a fun one to watch."