10 ms·

What is the poison pill?

by slenk 5y ago

ceejayoz 5y ago
If someone buys more than 15% of shares, they can issue more shares to other people to dilute them.
- emteycz 5y ago
  I don't understand how that's not financial fraud.
  - runako 5y ago
    What would be fraudulent about that? Companies issue & retire shares all the time, for lots of reasons.
    - emteycz 5y ago
      Yeah but they usually don't do it with the express purpose of screwing over an investor - and when they do, there are consequences (like FB).
      - runako 5y ago
        You're not making a case for this being fraud. Why would this be fraud rather than a sharp-elbow business tactic? "Fraud" has a concrete meaning; for this to be a fraud, one would need to be able to identify precisely of what Musk has been defrauded.
      - mypalmike 5y ago
        The poison pill clause is part of the shareholder contract, often specified in the articles of incorporation.
      - danieldisu 5y ago
        Oh, if they execute the poison pill there will be consequences, just not legal ones. Trust is a big part of stock value, if you don't trust the board is time to sell...
      - danso 5y ago
        The poison pill is fighting off a hostile takeover, by someone who has offered a first-and-final-offer. It would be screwing the other investors to have zero negotiations for a better deal.
  - antiterra 5y ago
    Because fraud requires deception and there’s nothing deceptive about a poison pill that makes the news.
- slenk 5y ago
  Ahh, thanks
- cbm-vic-20 5y ago
  Which other people would get those shares? Would that be considered taxable income for the recipients? If I were a regular shareholder and my shares were diluted without compensation, I'd be pissed...
  - spikels 5y ago
    As far as I know it has never been done in practice but is sure seems like it would have a huge amount of fallout for existing shareholders. Would the board actually pull the trigger knowing this? On the other hand poison pills are widely used and have generally been considered a credible defense.
    - tptacek 5y ago
      They don't have to pull the trigger; it's already set up. These triggers never get pulled because it's irrational for a hostile acquirer to play chicken with them; it's like playing chicken with a brick wall.
  - likpok 5y ago
    Every other shareholder gets access to the shares. So the effect is: you can buy $420 worth of twitter stock for $210 unless you're elon musk or working in concert with elon musk. Some poison pills just give the shareholder extra shares -- it's basically a stock split except for the targeted shareholders.
  - mannykannot 5y ago
    As described above, it would be like a stock dividend or split (except for the 15%) - no income, no capital gains, no dilution. In reality, this poison pill is more complicated - from Matt Levine: "The main mechanism of the pill is that if Musk or anyone else acquires more than 15% of Twitter's stock, then every other Twitter shareholder will have the right to pay $210 to acquire $420 worth of Twitter stock (at then-current market prices)." He also points out that this is moot except in the highly unlikely event that it is triggered - in which case, someone screwed up really badly.
- ascar 5y ago
  That explanation sounds like they are just giving away shares, which they aren't. Other parties get the _right_ to buy additional new shares at a reduced rate.
  - colinmhayes 5y ago
    > Other parties get the _right_ to buy additional new shares at a reduced rate. This is effectively the same as giving away shares.
    - ascar 5y ago
      I think that oversimplifies the dynamics drastically. First off, even if buying the shares at the reduced rate is highly profitable, you do need the cash to buy them. With the 50% that are floating around here that's a significant amount of cash. Furthermore, with the dilution that's happening the stock price would also drop so while you gain on the reduced shares, you loose on money on your old shares unless Elon keeps buying. I just don't see that it's the same as giving away shares for free (which is just adding dilution without additional capital costs for the existing shareholder). Feels to me like an all parties lose situation if it's triggered.
      - w23j 5y ago
        The other shareholders don't need to have the money: "Another, perhaps more practical provision of the pill says that the board can just exchange each right for one share of stock, for free, meaning in essence that the board can double everyone else’s number of shares of Twitter while holding Musk’s constant, without asking anyone to put in more money." (From a recent Money Stuff.)
duped 5y ago
https://www.cnbc.com/2022/04/15/twitter-board-adopts-poison-pill-after-musks-43-billion-offer-to-buy-company.html https://www.cnbc.com/2022/04/15/twitter-board-adopts-poison-...

What is the poison pill?

by slenk 5y ago

What is the poison pill?

ceejayoz 5y ago

If someone buys more than 15% of shares, they can issue more shares to other people to dilute them.

emteycz 5y ago
I don't understand how that's not financial fraud.
- runako 5y ago
  What would be fraudulent about that? Companies issue & retire shares all the time, for lots of reasons.
  - emteycz 5y ago
    Yeah but they usually don't do it with the express purpose of screwing over an investor - and when they do, there are consequences (like FB).
    - runako 5y ago
      You're not making a case for this being fraud. Why would this be fraud rather than a sharp-elbow business tactic? "Fraud" has a concrete meaning; for this to be a fraud, one would need to be able to identify precisely of what Musk has been defrauded.
    - mypalmike 5y ago
      The poison pill clause is part of the shareholder contract, often specified in the articles of incorporation.
    - danieldisu 5y ago
      Oh, if they execute the poison pill there will be consequences, just not legal ones. Trust is a big part of stock value, if you don't trust the board is time to sell...
    - danso 5y ago
      The poison pill is fighting off a hostile takeover, by someone who has offered a first-and-final-offer. It would be screwing the other investors to have zero negotiations for a better deal.
- antiterra 5y ago
  Because fraud requires deception and there’s nothing deceptive about a poison pill that makes the news.
slenk 5y ago
Ahh, thanks
cbm-vic-20 5y ago
Which other people would get those shares? Would that be considered taxable income for the recipients? If I were a regular shareholder and my shares were diluted without compensation, I'd be pissed...
- spikels 5y ago
  As far as I know it has never been done in practice but is sure seems like it would have a huge amount of fallout for existing shareholders. Would the board actually pull the trigger knowing this? On the other hand poison pills are widely used and have generally been considered a credible defense.
  - tptacek 5y ago
    They don't have to pull the trigger; it's already set up. These triggers never get pulled because it's irrational for a hostile acquirer to play chicken with them; it's like playing chicken with a brick wall.
- likpok 5y ago
  Every other shareholder gets access to the shares. So the effect is: you can buy $420 worth of twitter stock for $210 unless you're elon musk or working in concert with elon musk. Some poison pills just give the shareholder extra shares -- it's basically a stock split except for the targeted shareholders.
- mannykannot 5y ago
  As described above, it would be like a stock dividend or split (except for the 15%) - no income, no capital gains, no dilution. In reality, this poison pill is more complicated - from Matt Levine: "The main mechanism of the pill is that if Musk or anyone else acquires more than 15% of Twitter's stock, then every other Twitter shareholder will have the right to pay $210 to acquire $420 worth of Twitter stock (at then-current market prices)." He also points out that this is moot except in the highly unlikely event that it is triggered - in which case, someone screwed up really badly.
ascar 5y ago
That explanation sounds like they are just giving away shares, which they aren't. Other parties get the _right_ to buy additional new shares at a reduced rate.
- colinmhayes 5y ago
  > Other parties get the _right_ to buy additional new shares at a reduced rate. This is effectively the same as giving away shares.
  - ascar 5y ago
    I think that oversimplifies the dynamics drastically. First off, even if buying the shares at the reduced rate is highly profitable, you do need the cash to buy them. With the 50% that are floating around here that's a significant amount of cash. Furthermore, with the dilution that's happening the stock price would also drop so while you gain on the reduced shares, you loose on money on your old shares unless Elon keeps buying. I just don't see that it's the same as giving away shares for free (which is just adding dilution without additional capital costs for the existing shareholder). Feels to me like an all parties lose situation if it's triggered.
    - w23j 5y ago
      The other shareholders don't need to have the money: "Another, perhaps more practical provision of the pill says that the board can just exchange each right for one share of stock, for free, meaning in essence that the board can double everyone else’s number of shares of Twitter while holding Musk’s constant, without asking anyone to put in more money." (From a recent Money Stuff.)

duped 5y ago

https://www.cnbc.com/2022/04/15/twitter-board-adopts-poison-pill-after-musks-43-billion-offer-to-buy-company.html https://www.cnbc.com/2022/04/15/twitter-board-adopts-poison-...