How Twitter fought Elon Musk with a real estate investment strategy

The social network briefly turned to a poison pill to fight the richest man in the world. And it turns out that poison pills have a long history in the real estate industry.

Earlier this month, as Elon Musk intensified his attempts to take control of Twitter, the company’s board adopted a dramatic and curious strategy: the poison pill.

The effort came after Tesla’s billionaire CEO bought more than 9 percent of the social network, but before he tinkered with the $44 billion that ended up earned him the company this week. And for this brief interregnum between the old and the new Twitter regime, the poison pill represented a high-risk bet to keep the company out of Musk’s hands.

The poison pill strategy ultimately failed thanks to the strength of Musk’s bid, but what few realized as the story unfolded was that Twitter was finally releasing its book of real estate investment world game.

What is a poison pill?

A poison pill is a method to ward off investors who would take control of a company by buying large amounts of stock without the approval of the company’s board of directors. In other words, it’s a defense against a hostile takeover.

The poison pill strategy specifically allows investors to buy new shares of the company at a discount. This in turn dilutes the shares of the potential owner, who is generally not allowed to buy shares during the poison pill event, meaning that he ultimately owns less of the company than he hoped. originally. In this way, a poison pill strategy gives more control to minority shareholders and deprives the potential acquirer – in this case Musk – of some leverage.

However, there are also disadvantages. Deploying a poison pill can also make corporate actions less desirable, hence the name “poison pill”, and discourage institutional investment, among other things. Another potential downside includes empowering existing managers and leaders, even if those managers don’t guide the business to peak performance.

A well-known and recent example of this is when Papa Johns used a poison pill to prevent company founder John Schnatter from taking over the pizza maker after he was ousted. A number of other companies such as let’s group and At Dave and Buster’s have also used poison pills recently.

In the case of Twitter, a company deposit with the United States Securities and Exchange Commission argued that the poison pill would “protect shareholders against coercive or otherwise unfair takeover tactics.” The plan – which the board unanimously approved – would have been triggered if a shareholder had acquired 15% of the company.

What does it have to do with real estate?

Companies in various industries have used poison pills in the past, but by the late 1990s the strategy was associated with one industry in particular: real estate.

Specifically, in 1998, 31 different real estate investment trusts, or REITs, used poison pills, according to the the wall street journal. These trusts typically own large real estate portfolios — such as shopping malls, office buildings, or self-service warehouses — and sell shares to investors, allowing people to technically become part owners simply by buying shares. .

However, by the 1990s, the stock prices of some REITs were crashing. According to Logprices got so low that the companies themselves were worth less than the total value of their assets – meaning investors could have bought all the shares of some REITs for less than they would have paid for the land only these REITs owned.

Those 31 REITs who adopted poison pills in the 1998s represented a huge increase – there were only five poison pills of FPIs the previous year – and at the time, an analyst told the Log that even more real estate companies were exploring the strategy.

The era of widespread poison pills for REITs finally died down as the economy evolved in the early 2000s. However, as recently as 2020, corporate defense firm Latham and Watkins advised real estate companies to consider defense strategies such as poison pills in response to the escalating coronavirus pandemic. In other words, poison pills are still in the toolbox of publicly traded real estate companies.

What happened to the poison pill of Twitter?

The short answer here is that Twitter finally stopped trying to prevent Musk’s takeover and, this week, accepted his offer. On the way, Musk against competition investment giant Vanguard, which briefly overtook it as the largest shareholder in the social network. At one point, Twitter founder and former CEO Jack Dorsey also criticized company board for what he described as “conspiracies and coups” in efforts to thwart Musk.

In the end, however, the resolution was perhaps less dramatic than Dorsey’s comments might have suggested; Musk’s offer ultimately involved paying $54.20 per share, which represented a steep premium to the price at which the shares were trading.

In the end, it was all about the money.

What this means for Twitter remains to be seen. Media commentators have describes a variety of potential future scenarios ranging from Musk leaving Twitter almost alone to him shaking the platform and welcoming banned accounts again, like the one belonging to former President Donald Trump. Musk has also repeatedly teased potential changes, but so far has not set out an overarching vision for his time at the helm of the company.

Email Jim Dalrymple II

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