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How Elon Musk Executed a Near-Perfect Hostile Takeover of Twitter

Elon Musk spent the lion’s share of 2022 trying to buy Twitter.

That he was successful has everything to do with leverage and pressure (and, of course, some incredible M&A work).

This is how Elon Musk executed a near-perfect hostile takeover:

A hostile takeover is when one company–or person, in this case–attempts to take ownership of another company (the “target company”) when the board of the target company does not want it to happen. There are basically two ways to do this:

(1) Make a premium offer to the Board of the target, putting immense pressure on the Board from the shareholders to sell at that price, or

(2) Go directly to the shareholders & offer to buy shares directly from them.

In the end, Elon launched both tactics, within about a week of each other, and both tactics put immense pressure on the Board in different ways–so much so that the Board decided to sell Elon the company.

In mid-April, Elon fired his first salvo by making a premium offer to the Board to buy all of Twitter for $41.39 billion, or $54.20/share. In hostile takeover terms, this is called a “bear hug.” It’s still hostile, and it’s still a takeover, because the Board doesn’t want to sell to Elon. But the idea of a bear hug is to make the Board such a good offer that the shareholders will put pressure on the Board to accept it so they can get premium value out of their shares. Elon’s hope was that the offer would be so strong that the Board would either just accept it outright, or take it to the shareholders for a vote.

The Board did neither.

Instead, the Board enacted the “poison pill” defense.

A poison pill is an anti-takeover defense launched by the board of a target company that severely dilutes the stock of the target upon a triggering event, making the company less desirable to the potential acquirer. The Board, of course, did not call is a “poison pill,” but instead called it a “stock rights plan” or “shareholder rights plan.”

It’s the same thing. The Board issues a dividend distribution of stock or stock rights that have options for redemption. In Twitter’s case, the poison pill would be implemented if any person gained 15% or more of the company. In this case, if Elon would have bought 15%+, the stock options would vest. When the options are exercised by shareholders, this severely dilutes the stock of the target company—and the stock of the acquirer, Elon.

The idea, then, is that Elon wouldn’t go forward with the takeover because he wouldn’t be able to afford to trigger the pill. Some buyers do decide to swallow the pill (basically paying a premium for the stock), but this is risky: target can reload and implement a second poison pill.

Though none are perfect, there are a couple “counters” to the poison pill:

(1) shareholder pushback in the form of a resolution/bylaw outlawing the pill. This can take a long time & needs broad shareholder support.

(2) the “just take over the company anyway” approach. You usually need a lot of money.

Elon, not short on money, and ever the gamesman, decided on the latter, but assured himself that the former was a nice little fallback. Mere days after the poison pill was implemented, Elon decided he would–kind of–circumvent the pill with a “tender offer.”

A tender offer is just when the acquirer makes an open offer to the shareholders of the target to purchase the shares at a certain price. Though Elon did not technically offer a price to the shareholders, his SEC filing said that he was “exploring” the idea. So, instead of going to the Board like he did originally, Elon threatened to go directly to the shareholders and say “Hey, I’ll buy your shares at $54.20/share. Deal or no deal?” In doing so, he could slowly but surely gain control of the company.

So–while his first offer to the Board was still on the table–Elon ALSO went to the shareholders directly and said he’d be willing to buy their shares directly, with or without the Board’s approval.

The amount of pressure this two-pronged approach placed on the Board is almost impossible to overstate.

– Immense pressure to sell at the initial premium price, AND

– Pressure from millions of shareholders selling bit by bit & devaluing the stock (death by a thousand cuts)

By pursuing this strategy, Elon effectively mitigated the impact of the poison pill, saying to the Board: “sell your company to me, or it will become devalued to the point that you will be forced to sell. At that point, I’ll be waiting at the door w/ another (lesser) offer.”

In a word, brilliant.

Another third point of pressure was from the public itself. The situation was a PR nightmare for the Board, who appeared to be holding shareholders hostage by not selling at a premium price merely because of their distaste for Elon.

Cracks could be seen developing in the Board.

By summer, Jack Dorsey (Twitter’s co-founder & former board member) appeared to be at odds with other members of the board over the direction of the company.

The combination of the premium offer, with the tender offer to shareholders, with the mounting public pressure, ultimately became too much of a pressure cooker for a fractured Board, and they (allegedly) voted to sell the company to Elon. In a hostile takeover, you don’t need to win the first battle to win the war. Sometimes all that is needed is to create pressure, and keep mounting it from different angles, ultimately creating division and dissension between board/shareholders and within the board itself.

And then the house–even a house as large and powerful as Twitter–can fall like a deck of cards.

The 7 legal steps you need to take to start your small business in Ohio

You may have a great business idea, but you don’t know where to begin. These are the 7 things you need to do from a legal perspective to start your small business in Ohio.

  1. Form a limited liability company (LLC) with the Ohio Secretary of State. This takes 10 minutes, and it’s a great first step whether you’re starting a business for yourself, or going into business with others. It is important that you shield your personal assets from the debts and liabilities of your business, and forming an LLC is a great way to do that.  In the eyes of the law, an LLC is a separate entity from you personally.  Therefore, if your LLC is sued in the future, only the assets of the LLC—and not your personal assets—are at risk.  Additional benefits of LLC’s include pass-through taxation (they are treated like sole-proprietorships), heightened credibility and minimal state compliance regulations.  In Ohio, an LLC is created by filing Articles of Organization with the Secretary of State.  The cost is only $99.
  2. Create an operating agreement. An operating agreement outlines how your LLC will operate and function. It outlines the ownership, how profits & losses are dealt with, how decisions are made, and much more. It’s also a key document because it helps to show that you are running the LLC as a separate entity and not as an extension of you personally. Get a good business attorney to draft this document for you–it will save a lot of headaches down the road!
  3. Draft resolutions for your LLC. Because the LLC is a separate entity from you personally, the LLC needs to give authority to individual people to do things like start a bank account, make decisions, and hire officers. Resolutions that you keep in your corporate records can accomplish this.
  4. Open a bank account under the name of your LLC. It’s important that your LLC’s revenue goes into your LLC’s bank account so you don’t commingle funds. You also need to pay your bills & expenses out of your LLC’s bank account. This, again, shows that you are running your LLC as a separate entity and not an extension of you personally.
  5. Consider an umbrella insurance policy. Every small business should buy general liability insurance.  These traditionally broad policies insure against the risk that the insured may cause injury to clients or other third parties.  You will need to check with a broker for quotes, but umbrella policies for most small businesses is usually quite affordable.
  6. Consider what kinds of contracts you’ll need. Do you have employees? Consider whether you should have them sign non-compete or confidentiality agreements. Do you have customers? Consider what kinds of contracts your customers should sign upon doing business with you. Do you have suppliers or vendors? Make sure you are reviewing those contracts with regularity. It’s smart to have an experienced business attorney review and/or draft your contracts so you are well protected.
  7. Be nice! This is the number one piece of advice I give my small business clients (and all my business clients).  The best protection you can give yourself is to be friendly and accommodating.  Even if you occasionally err, clients who like you will almost never sue you.
  8. Please feel free to reach out to me at mdearden@deardenlawoffices.com if you want to discuss how to best manage risk in your small business. The above blog post is not legal advice and should not be construed as such.  Every business is different, so business owners should consult an attorney to determine which solutions might work best for them.

The 4 Levels of Legal Protection You Need for your Fitness Business

I’ve been working with several great fitness businesses recently through my law firm, and there is one question that clients always ask without fail: how can I best shield myself from liability if one of my clients gets injured during a workout?  While it’s impossible to fully insulate yourself from all liability, you can definitely take steps to protect yourself.  Whether you train clients virtually, in person, or via DVD, there are four levels of protection that every fitness business owner should have in place:

  1. Form an LLC.

It is important that you shield your personal assets from the debts and liabilities of your business, and forming a limited liability company (LLC) is a great way to do that.  In the eyes of the law, an LLC is a separate entity from you personally.  Therefore, if your LLC is sued in the future, only the assets of the LLC—and not your personal assets—are at risk.  Additional benefits of LLC’s include pass-through taxation (they are treated like sole-proprietorships), heightened credibility and minimal state compliance regulations.  In Ohio, an LLC is created by filing Articles of Organization with the Secretary of State.  The cost is only $125.

2.  Utilize a great release.

As much as possible, require your clients to sign liability releases before participating in your programs.  In Ohio, a clear and unambiguous release that relieves your business from liability for its own negligence will generally be upheld by courts.  Moreover, a release of a cause of action for damages is ordinarily an absolute bar to a later lawsuit on any claim encompassed within the release.  To be enforceable, a good release should (1) clear and unequivocal in every way, (2) state exactly which person/entity is being released from liability (you should include both your business and you personally) and (3) clearly outline the claims that are barred in the future.  Courts in most jurisdictions tend to look favorably upon well-written releases, so do it right the first time!

3.  Buy general liability insurance.

Every fitness business should buy general liability insurance.  These traditionally broad policies insure against the risk that the insured may cause injury to clients or other third parties.  You will need to check with a broker for quotes, but insurance for personal trainers and non-traditional fitness businesses is usually quite affordable.

4.  Be nice.

This is the number one piece of advice I give my fitness business clients (and all my business clients).  The best protection you can give yourself is to be friendly and accommodating.  Even if you occasionally err, clients who like you will almost never sue you.

Please feel free to reach out to me at mdearden@deardenlawoffices.com if you want to discuss how to best manage risk in your fitness business.

**The above blog post is not legal advice and should not be construed as such.  Every business is different, so business owners should consult an attorney to determine which solutions might work best for them.