Twitter’s war: Know how companies do forced takeover, what is the rescue strategy
Twitter’s war intensifies
Twitter has announced the Poison Pill a day after Musk’s offer, this provision will be applicable when an investor takes more than 15 percent stake in the company. Know what are the strategies of both sides
At present, two different wars are going on in the world. One between Putin and Ukraine in the military and politics, and Musk and Twitter in the economic sphere (TwitterBetween ) .. At present the situation is that it has been many days since Russia and Ukraine entered the war and it is visible to whom how much damage has been done. On the other hand, Twitter and Musk ,Elon Musk) Both have announced their strategies, now the competition is yet to take place. .. The world is watching this struggle and this war can clear the picture of the world of hostile takeover i.e. forced occupation by billionaires like Musk. Understand what can be the strategies of both the parties in this battle to take back a company.
What is Hostile takeover
The strategy that is being discussed the most in this war of Twitter is Hostile takeover. Actually, when a company wants to buy the business of another company, then the direct way is to talk to the management and board of the other company about it. It is the right of the other company to accept this deal or not. Management or Board can cancel this deal at any time at its level. There is a screw in this though. In fact, according to the rules, the ownership of the company belongs to whoever has or in whose favor there is a majority stake. , Many big companies take advantage of this rule to buy such other companies, where the majority stake is not with any one. The bidding company offers the shareholders a higher price of shares, so that they can hold more and more shares and either get a majority share or vote with the help of a higher share share to get the strongest position on the board. Do it It is called forced occupation or hostel takeover because it does not involve the approval of the board or management.
What are the Hostile Takeover Strategies
1) For the hostile takeover, companies offer tender offers (offer prices much higher than the market price), at the moment Musk has taken this step.
2) On the other hand, the second weapon is proxy vote, in which the company trying to takeover persuades the existing shareholders to vote legally and show the way out to the existing management so that the takeover can be done easily.
3)Third, an attempt is made to influence the further sentiments among investors for the company to be taken over. So that the shareholders sell their stake at the present time at higher returns instead of any loss in future.. Note that takeover Along with making the offer, Musk had said in his statement that Twitter is not going in the right direction and needs to be changed and he can increase its price but if his offer is not accepted then he can also consider the current stake. If Musk sells his stake, then this market can take it as a signal.
Forced occupation is a very common form of economic warfare. In 2019, L&T took over the company by increasing its stake in Mindtree to 60 per cent. It is considered to be the country’s first hostel takeover.
What is Defense Mechanism
If a company wants to take over another company, then in response to this, the other company will also not sit silent for its security. Companies know the reality of forced occupation and have strategies for it.
One of the easiest ways to avoid forcible takeover is to position the company in such a way that it becomes less attractive and costly to investors. This is called the Poison Pill strategy. In this, companies already have a provision that in the event of a forced takeover, the number of shares in the market should be increased. This increases the number of shares required by the majority for the takeover attempter and makes the deal costly for him. Because he has to buy more shares than ever before for the takeover. Some of the disadvantages of this strategy are also on the company that uses it, so it is called Poison Pill, although this strategy has proved effective many times to protect itself. The effect of Poison Pill can be eliminated by proxy voting.
and what are the strategies
Also in Defense Strategy crown jewel (the sale of the company’s most valuable asset in the event of forcible control, leaving nothing to the controlling person), supermajority (Provision in which the stake in the company is required to be more than 51 percent for control), golden parachute (a situation where they are paid a very high price in case the management is ousted), green mail (A provision where the target company can make a better offer to buy shares on its own after an offer from the forcibly takeover company) is included. Currently, Twitter has resorted to the Poison Pill for a year.