What happened to Elon Musk and Twitter? A primer on Corporate Takeovers

If you’ve been following the news, you might have heard about Elon Musk’s acquisition of Twitter 2 years ago (now x.com). But have you ever wondered what goes on behind the scenes of a corporate takeover? In this post, lets delve into the world of mergers and acquisitions, exploring the different methods companies use to acquire or defend against takeovers.

Let’s start with the basics. A hostile takeover occurs when one company tries to acquire another without the consent of the target company’s management and board of directors. This can be a tense and dramatic process, but it’s not the only way companies can change hands. In fact, there are several strategies that companies can use to achieve their goals.

One defensive tactic that’s often used is the “Poison Pill” strategy. This involves issuing new shares of stock at a discounted price to existing shareholders, making it less attractive for potential acquirers to buy out the company. It’s like a deterrent, designed to make the company less appealing to those who might be looking to take control.

In the case of Twitter, Elon Musk initially purchased a significant stake in the company (roughly 9.2% see https://abcnews.go.com/Business/timeline-elon-musks-tumultuous-twitter-acquisition-attempt/story?id=86611191), becoming its largest shareholder. He then made an unsolicited offer to acquire all of Twitter’s outstanding shares at a premium price – a classic hostile takeover bid. Twitter responded by adopting the Poison Pill strategy, but ultimately, the two parties reached an agreement for Musk to acquire the company for $44 billion.

But hostile takeovers and Poison Pills are just the tip of the iceberg. There are other methods that companies can use to acquire or defend against takeovers. For example, a proxy fight involves soliciting proxies from other shareholders to vote for your preferred candidates for the board of directors. This can be a way for a shareholder to gain control of a company without actually buying it out.

Another approach is the leveraged buyout (LBO), where an acquisition is financed primarily with debt, often using the assets of the target company as collateral. And then there’s the creeping acquisition, where a company gradually accumulates shares in a target company over time.

So, how can companies defend themselves against these types of takeovers? Besides the Poison Pill, there are other tactics that can be used. For instance, a company might find a “White Knight” – a friendly acquirer who can buy the company instead of the hostile bidder. Or, they might offer generous severance packages to executives in the event of a takeover, known as a “Golden Parachute”.

I hope the topic has been as interesting for you as it has been for me during my research. Till next week.