M&A takeover defence strategies – Twitter’s Acquisition Overview

What’s been happening at Twitter?

Twitter a social networking platform was founded in 2006 by Jack Dorsey, and 3 other people. In its 16 years of operation, the company has grown to an average of 330 million monthly active users and added several features such as the super follow button, a subscription service allowing content creators to receive payment for their content, and the Twitter space amongst others.

In November 2021, Jack Dorsey the Co-founder and CEO of Twitter announced he would be stepping down from his role and handing over to Parag Agrawal the CTO of the company at the time. Jack’s resignation came at a time when Twitter was facing lots of criticism due to some of Jack’s past decisions and policies such as Twitter not having an edit button feature, banning political advertising before the US presidential election in 2019, as well as the Donald Trump ban.

With all these events unfolding, it was not surprising when Elon Musk the richest man in the world and an ardent user of Twitter who regularly shares his opinion on the need for free speech and an edit button on the platform announced he had acquired 9.2% of Twitter shares and had become the highest shareholder of the company. Jack Dorsey, Parag Agrawal, Twitter employees, and the public were excited by this announcement as everyone was looking forward to Elon Musk’s innovative ideas helping to shape the next phase of growth of the company. It was therefore not surprising when he was offered a seat on the board not long after the announcement by Twitter’s CEO, Parag.

A few days later, a series of surprising events happened; first Elon Musk rejected the offer to seat on the board and then announced an offer he made to the board of Twitter stating he wanted to acquire 100% of the company for $54.20 per share in cash, a 38% premium over the day before his investment was publicly announced. Here is his filing to the United States Securities and Exchange Commission (SEC).  His main reason for making the offer was his belief in “Twitter becoming a platform for free speech around the globe” and that this goal cannot be achieved in the company’s current form, hence his offer to acquire the company and transform it into a private company to achieve this goal.

In response to the unsolicited bid by Elon Musk to acquire Twitter, the Twitter board announced a limited duration shareholder rights plan to thwart the takeover bid.

However, on the 25th of April, the Twitter board made a reversal from their initial decision and announced it was selling the platform to Elon Musk. The deal worth $46.5 billion is expected to be funded through two debt commitments letters from Morgan Stanley Senior Funding worth $25 billion. The remaining $21 billion by Elon Musk through cash and debt.

Final negotiations are going on between both parties and a final deal is expected to be announced in the coming days.

Initially, the Twitter board were rolling out strategies such as the poison pill to thwart Elon Musk’s plan to take over the company, in this article, I would be giving a brief overview of what hostile takeovers are, hostile takeover strategies, and common defences against a hostile takeover.

What is a hostile takeover?

A hostile takeover is the acquisition of a target company by an acquiring entity against the wish of the target company’s management. It is achieved by the acquiring entity either making a tender offer or using a proxy vote (fight). The main difference between a friendly and a hostile takeover is that despite the target company board not approving the transaction, the acquiring entity still tries to push for an acquisition in the case of the former whilst the board approves for the latter.

Hostile takeover strategies

In a situation where the target company rejects the offer of the acquiring company, the latter can still push for its bid by issuing a tender offer, employing a proxy vote, or attempting to buy the required company stock in the open market. The first two are the commonly used strategies. There are explained below:

1. Issuing a tender offer

A tender offer is an offer to purchase stock shares from the shareholders of the target company at a premium to the current market price (for example 1.8X). The goal of the tender offer is to acquire enough shares that would ensure the acquiring company have a controlling interest in the target company which would then give it the power to achieve its takeover objective.

It is however important to note that the tender offer is usually conditional on the premise that the required number of shares would be purchased within the specified period. If this is not achieved, the share tender offer is usually revoked.

2. Proxy vote (fight):

A proxy fight is the act of the acquiring company persuading existing shareholders in the target company to vote out the current management of the company to make it easy for it to takeover the target company. The goal of a proxy vote is usually to replace the board member opposing the transaction and replace them with more receptive people.

Defence strategies against a hostile takeover

There are several strategies the management of a hostile takeover target company can employ to deter a hostile takeover. They include the following:

1. Poison pill

This is a method where the management of the target company makes the stock of their company less attractive by allowing current shareholders apart from the potential buyer to purchase more of the company stock at a strike price (discount). This will dilute the equity holding of the company and make it more expensive for a potential acquirer to continue with his bid.

2. Differential voting right

To protect against potential takeovers, a company can establish stocks with differential voting rights, where some shares have a greater voting power than others. This makes it difficult for a potential acquirer to generate the votes needed for a hostile takeover.

3. Crown jewel defence

This is a method of selling the most valuable part of a company, thus making it less attractive to acquire the target company. It is usually considered a last resort.

4. Golden parachute

This is a strategy where the employment contracts of key management members guarantee an expensive benefit to be paid to them in the event, they are removed from the company following a takeover.

5. Supermajority amendment

This is an amendment to the article of incorporation of a company requiring a substantial majority of the shares to vote (60-90%) to approve a merger.

6. Greenmail

This is a strategy where the target company repurchases shares already purchased by the potential acquired company. This is usually achieved by the target company offering a higher premium than the acquiring company and protecting it from having a controlling stake

7. Pac-man defence

In this strategy, the target company purchases shares in the target company to carry out a takeover of their own. This usually results in the acquiring company abandoning its takeover attempt if it faces a risk of losing control of its own business. This strategy however requires the target company to have a lot of money to carry out this process.

8. White Knight

This is a strategy where a “friendly” entity acquires the target company at a fair consideration when it is on the verge of being acquired by an “unfriendly” acquirer. The unfriendly acquirer is usually referred to as the black knight while the friendly acquirer is a white knight. Company management usually uses this strategy when they seek to preserve the company’s core business or to negotiate a better takeover term.


There are several examples of hostile takeover attempts and defences in real-life. A popular one is the Elon Musk Vs Twitter case currently trending. Elon Musk is about to successfully use the tender offer to take over Twitter while the Twitter board tried using the poison pill defence and the golden parachute strategy to initially prevent the deal from happening.

As everyone across the globe continues to watch, it would be interesting to see one of the biggest takeovers in recent years happen.

Written by: Habeeb Olusanya

Financial Analyst

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