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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 dilu

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.
- 988747 5y ago
  So the discount for existing shareholders is only 50%? That still requires pretty significant investment from their side, what if they can't come up with enough money? Poison pill becomes uneffective, right?
  - danso 5y ago
    Why wouldn't existing shareholders buy heavily discounted stock, knowing that there's a good chance Musk will go all in and pay a premium for it?
    - elcomet 5y ago
      Maybe because they do not have the money, and because it's not certain that musk will go all in.
lazyier 5y ago
> Which other people would get those shares? The offer is extended to existing shareholders. So if you own 10 stocks you will be allowed to purchase 10 more stocks at a vastly reduced cost. Something like that. This way you can screw over the corporate raider without screwing over existing stock holders.
- skellington 5y ago
  The poison pill is blatantly unethical. The fact that it exists as a tactic where a company can target a specific shareholder and dilute them exclusively, while also diluting other shareholders who don't have the money to participate in the poison pill, is yet more proof that the SEC is a garbage organization.
  - tptacek 5y ago
    It's been settled corporate law for decades, and it serves a clear purpose: without poison pills, hostile buyers can also do blatantly unethical things, like coercive lowball bids that punish shareholders that don't tag along.
  - 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.) It also gives reasons why poison pills were allowed by the Delaware Supreme Court (and not the SEC).
    - Ajedi32 5y ago
      That seems even worse then; it's effectively the board voting to steal shares from a major shareholder in order to increase their own relative stake in the company. How is that not illegal?
      - 5y ago

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.

988747 5y ago
So the discount for existing shareholders is only 50%? That still requires pretty significant investment from their side, what if they can't come up with enough money? Poison pill becomes uneffective, right?
- danso 5y ago
  Why wouldn't existing shareholders buy heavily discounted stock, knowing that there's a good chance Musk will go all in and pay a premium for it?
  - elcomet 5y ago
    Maybe because they do not have the money, and because it's not certain that musk will go all in.

lazyier 5y ago

> Which other people would get those shares? The offer is extended to existing shareholders. So if you own 10 stocks you will be allowed to purchase 10 more stocks at a vastly reduced cost. Something like that. This way you can screw over the corporate raider without screwing over existing stock holders.

skellington 5y ago
The poison pill is blatantly unethical. The fact that it exists as a tactic where a company can target a specific shareholder and dilute them exclusively, while also diluting other shareholders who don't have the money to participate in the poison pill, is yet more proof that the SEC is a garbage organization.
- tptacek 5y ago
  It's been settled corporate law for decades, and it serves a clear purpose: without poison pills, hostile buyers can also do blatantly unethical things, like coercive lowball bids that punish shareholders that don't tag along.
- 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.) It also gives reasons why poison pills were allowed by the Delaware Supreme Court (and not the SEC).
  - Ajedi32 5y ago
    That seems even worse then; it's effectively the board voting to steal shares from a major shareholder in order to increase their own relative stake in the company. How is that not illegal?
    - 5y ago