Elon Musk Got POISON PILLED | How Twitter's Poison Pills Works.

well folks it is official elon musk has

been poison pilled by twitter now no

even though the name is inspired by the

cia where if a cia operative is captured

they take a poison pill usually

and they uh disappear before being able

to be captured by the enemy right well

it's a little different in stocks okay

no violence here

but what a poison pill in stocks is is

essentially a way to prevent a hostile

takeover and buy more time for a

negotiation this is the press release

from twitter adopting a limited duration

one year shareholder rights plan and

basically what they're trying to do with

this rights plan uh is say hey look

we're trying to buy time

that's what we're trying to do here

we're not saying no to elon musk's

generous offer they didn't actually call

us offer generous

but i mean quite frankly like

look elon musk is offering to pay 50 uh

420 54 20 for the company and just look

at the max history of the chart okay it

hasn't been above 54 20 that much i mean

a little bit here when it first ipod and

a little bit during some of the euphoria

of february and uh late 2021 uh but

beyond that it's almost always been

below that price but whatever like the

saudi prince says who wants to control

our free speech

twitter at 5420 is below its intrinsic

value and therefore it shouldn't be sold

for that price or you secretly want

something to do with the free speech

that we have in america but okay all

right let's just go back to this little

shareholder rights plan and so

one of the neat things is they do make

it clear here like look this this

doesn't preclude them from negotiating

with elon it it basically just says hey

and i'm going to break down to explain

to you exactly how it works but it's

basically a way saying hey hey look

we're going to make it virtually

impossible

for somebody to just take over 50 of our

company uh by just buying shares on the

public market uh and i'll explain how

they do that but in the meantime

we'll still be open to negotiating this

actually increases their ability to

negotiate anyway it's no surprise to me

that they held their emergency meeting

one hour after the market closed

yesterday to respond to elon musk it's

no surprise to me uh that you know on

good friday where the stock market is

closed you've got this uh uh this

announcement of a poison pill

essentially but let's go ahead and go

through and explain exactly what this is

a quick note there is in honor of elon a

coupon code link down below for the

amazing programs on building your wealth

it's cyber kevin take a look at that uh

that expires in five days on 4 20 and

the price uh will take up again as we

release a new set of content as well

especially in the wealth path course

that's the next one to get some new

lectures anyway now i'm going to give

you a rough example as to how a poison

pill could work the reason i can't give

you the exact yet is because of this

line right here additional information

regarding the rights plan will be

contained in the form 8k to be filed by

twitter with the sec and it takes a

while for that to get reviewed and

posted so now i'm just going to give you

an example of how one of these

shareholder rights plans could work or

poison pills let's say that right now

there are

763 million shares outstanding of

twitter which there are last close price

was 45 dollars and eight cents if you

multiply these two together you get

34.422 million uh i'm sorry billion

dollars so uh this is this is the market

cap of the company this makes sense it's

a 34.4 billion dollar company so 15 of

the shares are about 114 million so if

elon musk got to 15 he would have to

have 114 million shares and boom that

would trigger the shareholder rights

plan it happens only once when somebody

hits 15

and then it gets triggered and people

can take advantage of the rights plan so

what does the right let you do well the

right lets all of the individuals who

have the 649 million shares the other 85

percent to get one other share or two

other shares or 300 shares tbd they get

to get more shares at about 50 discount

of the current then market value okay so

this is a little tricky so to understand

this just as an example this would mean

we would take that 85 percent figure or

that 649 mill let's say everybody gets

one more share at a discount well then

we times two and now

uh you add back elon's shares and this

is how many new shares you have in total

for uh 1.4 billion shares so in other

words you started with 763 million

shares but now you actually have 14.

or 1.4 billion

shares

this means if elon musk still owns only

holds 114 million shares out of 1.4

billion shares his share in the company

has gone from 15

to 8.1

so he's lost a lot of value there he's

lost almost 50 percent of his stake in

the company gone because everybody else

was able to dilute him

now if you take this new share count and

divide it by 34 billion dollars the

market cap of the company then the new

share price would be about

24.37

and the way the math would work out

would be something like this

let's say for the non-takeover person

you had one share at 45 and 8 cents the

last closing price you get to buy

another one at fifty percent of the new

valuation which means you're buying

another share twelve dollars and

eighteen cents that means you have two

shares now for cost basis of fifty seven

twenty six or twenty eight dollars and

sixty three cents per share which means

the individual shareholder also lost

some money here they lost about 15

percent in value just to get this person

diluted by about 54

so everybody's taking a little bit of a

hit here now i think that's why they

call this a poison pill because it's not

delicious for anyone to swallow this is

also why usually shareholders don't like

having poison pills in place otherwise

companies would just always have poison

pills in place but the way the math

looks when i do it unless i'm doing

something wrong which is entirely

possible we know one thing for sure we

know that elon state this is what we

know for sure we know that elon stake

drops and then if he wants to buy more

to get to 15 again he would just trigger

this from happening again boom he'd lose

again he would just keep losing roughly

50

now based on my math and this is where i

think i could be wrong it doesn't look

like the existing shareholders really

benefit it looks like they actually take

a tiny little bit of a haircut as a well

to make this dilution possible

and i guess the thesis is hey well we're

swallowing something that doesn't taste

too good to try to protect the company

that's the thesis now where do we go

moving forward well there are a few

things that could happen going forward

number one there will probably be

lawsuits from shareholder groups or

attorney groups that say hey like

elon gave you a good deal instead you

swallowed a poison pill that deluded

even us that hurt us a little bit even

though we were able to get a share at a

discount now maybe we're able to get a

share at at uh more of a discount or

whatever to to remove that 15 pain uh

maybe we're able to get more shares who

who knows right the exact details will

come out in that 8k

but the point is shareholders might look

at this and say wait a minute like we

could have sold for a 30 premium and now

you're just making it harder for them to

take over the company we're going to sue

that's possible probably likely to at

the same time

twitter could continue to negotiate with

elon musk and of course elon musk could

try to wait until next year when there's

another opportunity for a proxy fight

and try to collect as many votes as

possible as many shareholder votes as

possible to get to 50

to replace the board this turns into a

proxy fight it's messy it takes a lot

longer i think the best case scenario

here moving forward is honestly that

twitter bought themselves a little bit

of time now they counter offer elon even

though i think elon's offer is great and

they should take it i would expect that

they're going to count off and say hey

look you know if you want control the

company fine but you're going to have to

pay us 69 a share i don't know we're 50

9 a share whatever and a deal could be

struck that way boom you move on because

the way the math looks it looks like

you're hurting your existing

shareholders by having a poison pill

that's going to set up some more

lawsuits even if you can minimize that

you're still giving up on that premium

that you could be getting selling the

company to elon musk so we'll see what

happens anyway thanks for watching we'll

see you next one