(NewsNation) — Twitter on Friday announced it has adopted a limited-duration shareholder rights plan in an attempt to thwart Tesla CEO Elon Musk’s bid to buy Twitter.
“The Rights Plan will reduce the likelihood that any entity, person or group gains control of Twitter through open market accumulation without paying all shareholders an appropriate control premium or without providing the Board sufficient time to make informed judgments and take actions that are in the best interests of shareholders,” a news release said.
According to The New York Times, the corporate maneuver is known as a “poison pill.”
It would go into effect if Musk’s roughly 9% stake in Twitter grows to 15% or more.
Devised by law firms in the 1980s, the rights plan lets a takeover target flood the market with new shares, or allows existing shareholders other than the bidder to buy them at a discount, the Times reported. Under this plan, anyone trying to acquire Twitter would have to negotiate directly with the board.
Musk could still take over the company in a proxy fight by voting out the current directors. According to Twitter, the plan doesn’t stop the board from engaging with parties accepting an acquisition proposal if it’s in the company’s best interests.
Musk tweeted Thursday that he made an offer to buy Twitter days after he said he would no longer join the social media company’s board of directors. Twitter, in a securities filing, revealed Musk offered to buy the company outright for $43 billion.
“I believe free speech is a societal imperative for a functioning democracy,” Musk said in the filing. “I now realize the company will neither thrive nor serve this societal imperative in its current form.”
Dan Ives, an analyst at Wedbush Securities, said the so-called “poison pill” is a predictable defensive measure, although it will likely not be viewed positively by shareholders, The Hill reported.
“The Board has (its) back against the wall and Musk and shareholders will likely challenge the merits of the poison pill in the courts. We believe Musk and his team expected this poker move which will be perceived as a sign of weakness not strength by the Street,” Ives said in an email to The Hill.
Musk’s announcement of his intention to buy Twitter caused concern among people who do not think the billionaire will be effective at moderating its content.
GlobalData analyst Rachel Foster-Jones told the Associated Press that regulators worldwide will be “wincing” at the potential free speech implications should Musk’s Twitter takeover succeed.
“Musk is clearly serious about promoting free speech for the benefit of democracy, but the line between free speech and hate speech or misinformation is becoming increasingly muddied, and attempts to change Twitter could easily lead to these issues spiraling out of control,” she said.
Free speech experts have plenty to say about Musk’s aim to buy Twitter.
Gene Policinski, senior fellow for the First Amendment Center of the Freedom Forum Institute, pointed out that social media is privately owned.
“The First Amendment doesn’t apply to them, so I think what we have is, if I don’t like how you moderate that site, I go somewhere else,” he said.
Although Musk calls himself a “free speech absolutist,” he has been quick to block those who question or disagree with him on Twitter.
“Free speech from his viewpoint is everything that he agrees with should be free and widely circulated. He’s not a fan of speech of criticism or speech that goes against his beliefs, however,” Rob Enderle, a principal analyst with Enderle Group, said.
Policinski said if Musk doesn’t buy Twitter, he might start his own site.
“If you can offer $43 billion dollars to buy something, you could spend $20 billion and build your own,” he said.
Billionaires have backed other platforms in recent years, such as “Parler” and “Truth Social,” from former president Donald Trump, who was banned from Twitter while in office, although neither has come close to Twitter’s 330 million users. Regardless of the platform, though, evolution is a given.
“We’ve had 230 years to work out the legal part of the First Amendment. We’re really only about in the second decade of working out the social media and the social parameters around this new tool that we have to speak to each other,” Policinski said.
This story is developing, refresh for updates.