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Dumb legal question: Why can a poison pill dilute away a single shareholder’s stake, but doing some scheme where 51% of the shareholders dilute away the stake
by niklasbuschmann 5y ago
Dumb legal question:
Why can a poison pill dilute away a single shareholder’s stake, but doing some scheme where 51% of the shareholders dilute away the stake of the remaining 49% is illegal?
- goodoldneon 5y agoIs it illegal for 51% of shareholders to dilute away the stake of the remaining 49%? Serious question -- I don't know. AFAIK (IANAL), companies have few restrictions on stock dilution as long as the dilution is in the best interest of the shareholders. You can make a legally defensible argument that one actor is bad and should be diluted, but it's probably hard to make a legally defensible argument for selectively diluting shares of idle shareholders.
- ffggvv 5y agoseems arbitrary whats considered a "bad actor". maybe i think climate activist shareholders in energy companies are hostile / bad actors. Can i selectively dilute them out?
- goodoldneon 5y agoAre they actively attempting a hostile takeover and the board thinks that they'll hurt the company? Then I think that'd be legal. Otherwise I don't see how you could make a legally defensible argument around diluting shareholders just because of their beliefs
- ffggvv 5y agohttps://www.cnn.com/2021/06/02/investing/exxon-shareholders-climate-activist/index.html https://www.cnn.com/2021/06/02/investing/exxon-shareholders-... in this case yes. wonder why they dont
- orhmeh09 5y agoWhy do you think they dont?
- goodoldneon 5y agoThey were elected to the board by shareholders. That's entirely different than a hostile takeover. You can't say "this is not in the interest of the shareholders" when the shareholders voted for it
- ffggvv 5y agothen lets dilute the shareholders who voted for it as theyh are clearly idealogically driven and actively hostile to the company itself or its profitability
- goodoldneon 5y agoYea... you're stretching this one
- ffggvv 5y agoi dont see why. isnt that why they are saying elon is bad? because hes driving for free speech? why is it okay if its one person, or a few people, but >n bad actors is fine?
- mrtesthah 4y ago>seems arbitrary whats considered a "bad actor". Well, I guess if you’re a moral relativist that might be the case. I mean, why not burn the rest of the planet down for temporary profits? Why not enslave children in the Congo? It benefits the shareholders after all. How about murder and torture for hire? These decisions just seem so arbitrary. *shrug*
- jonny_eh 5y agoThe poison pill is done in advance. If you buy-in and trigger it, it's your own fault.
- narrator 5y agoYes, this is a self-dealing transaction since it is detrimental to certain shareholders and not others without getting the adversely affected shareholder's consent. This is what Savrin sued Zuck over in the early Facebook days.
- tptacek 5y agoBe careful about trying to reason from first principles on stuff like this. Poison pill plans are bog-standard settled corporate law. The legal principle is that the board has the right (/duty) to judge the value of the company, and the courts, in most circumstances, don't second-guess it. The board can (and routinely does) decide that offers to acquire the company must be routed through the board. Plans like this are why Microsoft doesn't own Yahoo, and why Carl Icahn didn't buy Netflix.
- deleted 5y ago[deleted]
- freefal 5y agoUpdate: This is wrong. Ignore it. The poison pill is not diluting any individual shareholder disproportionately. What it is doing is issuing the right to buy shares at a steep discount. For example, if shares of Company XYZ are currently trading at $50/share, the board would issue all the company's shareholders the right to buy stock at $25/share. Economically, everyone should exercise their rights since this is a good deal. The issue for the hostile bidder is that it can become quite expensive to actually fund the exercise price to maintain their ownership interest. The company now also has more cash and so purchasing all the remaining stock that the hostile bidder does not own will become more expensive/difficult.
- pas 5y agoHm, but in this concrete example Elon is also a shareholder, so he can buy for 25/share, right? And as more shares are being created the spot price on the market should drop, no? Also, can the shareholders then sue the company (successfully? :)) for decreasing the price? ("everything is securities fraud" after all.)
- lr4444lr 5y agoYes, but presumably enough of the other members with smaller purchasing power will still be each marginally incentivized to buy enough more such that it will dwarf Musk's motivation to outbuy any of them individually. At least that's how I understand it.
- ben1040 5y ago>Hm, but in this concrete example Elon is also a shareholder, so he can buy for 25/share, right? Nope. The poison pill allows everyone but the one who triggered the provision to buy shares at a discount. From Twitter's press release: >In the event that the rights become exercisable due to the triggering ownership threshold being crossed, each right will entitle its holder (other than the person, entity or group triggering the Rights Plan, whose rights will become void and will not be exercisable) to purchase, at the then-current exercise price, additional shares of common stock having a then-current market value of twice the exercise price of the right.
- 5y ago
- HWR_14 5y agoI'm not going to speak to the legal technicalities, but I can tell you some major differences in the situations. - The poison pill is aimed at any investor trying to gather control, not a specific one. (At least legally) - The poison pill is 100% avoidable. It triggers off some future event. This is similar to many other grandfather clauses like building codes, where things are changed going forward. - 49% bought in thinking they were getting a share and a say in the company. Diluting them away is stealing and fraud (morally, not legally.) So, for instance, would be selling all the companies assets to Company 2 run by the same CEO and board (and who own 100% of Company 2) and letting Company 1 go bankrupt. The situation is actually identical if Elon were to suddenly tomorrow purchase up to 49%. In that case, it would be the 51% diluting the 49%.
- pas 5y ago> The poison pill is 100% avoidable Can you please elaborate on this? How can it be avoided?
- slg 5y agoIt prevents a hostile takeover. It doesn't prevent the company from agreeing to be sold. It theoretically offers protections to negotiate a sale without the buying party having the ability to circumvent that negotiation.
- HWR_14 5y agoThe poison pill (in Twitters case) dilutes any shareholder who acquires more than 15%. (In practice, it's not automatic, but it's what happens). No shareholder currently owns more than 15%. Therefore if anyone doesn't want to trigger this (like Elon Musk) he can avoid dilution by not buying any more shares. It's there to say "no individual can legally own more than 15% of Twitter" as someone is starting to buy Twitter up. Not say "we're going to explicitly screw Elon Musk after he bought 25% of Twitter."
- maratc 5y agoCan Elon and three of his "friends" own each 14.9999% of Twitter without triggering the poison pill, so getting to 59.999%?