What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing twitter's board of directors recently adopted the so-called poison pill in response to elon musk's impending attempt to take the company private. The poison pill is meant to resist this attempt at a hostile takeover from one of twitter's, most vocal and wealthiest critics, but not everyone views this. Take private offer as an antagonistic action to be resisted. Twitter's stock price has severely underperformed its social media peers and even the broader market since its ipo nearly a decade ago, just last year, the feared activists fund, elliott management, even also the company's founder and ceo jack dorsey, in an attempt to turn the company around while Musk's dislike of twitter's perceived censorship principles.

Dallas played a large role in his attempt to buy the company. It might just be a necessary shake-up to bring twitter to profitability, while the company has seen impressive user growth over the years. Looking at its revenue and net profit over the last, several quarters clearly shows that they have been unable to turn that user growth into consistent profits. By the way, you can build historical charts like this one, for free at our website wallstreetmillennial.com today we're going to go over what exactly twitter's poison pill means why elon musk is so at odds with twitter's board and what twitter's troubled financial position means for its future.

So what exactly is a poison pill? A poison pill is a so-called shareholder rights plan that essentially makes a company's stock unattractive to a prospective hostile takeover. Usually they stipulate that any person or entity builds up a large enough stake in the company. Then the existing shareholders can buy additional shares at a discounted price. The entity acquiring the large stake is excluded from the offering.

When that happens, the existing shareholders stakes in the company essentially can go up for free or at a highly reduced price, diluting the share of the entity doing the takeover. That means that the entity doing the takeover will have to pay much more to continue increasing their stake in the company, because suddenly it takes a lot more shares of the stock to gain the same percentage ownership. The poison pill that twitter's board unanimously approved was a classic poison pill in a press release. They wrote quote under the rights plan.

The rights will become exercisable if any entity, person or group requires beneficial ownership of 15 or more of twitter's outstanding common stock and a transaction not approved by the board. In the event that the rights become exercisable due to the triggering ownership threshold being crossed, each right will entitle its holder other than the person entity or group triggering the rights plan whose rights will become void and will not be exercisable to purchase. At the then current exercise price additional shares of common stock having a then current market value of twice the exercise price of the right. In other words, if elon musk builds up a 15 stake in twitter, all the other shareholders will be allowed to buy new shares of twitter at half price.

That would be like giving the existing shareholders free money in the form of twitter's talk diluting musk's stake. It would essentially make it impossible for musk to continue building up his take any further. The exact details of the plan haven't been released yet at the time of recording, but will be released in an 8k filing with the sec. Soon.

The fact that twitter's board adopted the poison pill shows that they view elon musk as an adversary. They do not want him to take control of twitter, but perhaps surprisingly, twitter's ceo, parag agarwal seemed to be on good terms with musk at least publicly. On april 4th musk put out a twitter poll asking if people want an edit button, the two response options were yse and o.n. Parag responded to that tweet, saying quote: the consequences of this poll will be important.

Please vote carefully. Unquote, that's a reference to a tweet that musk made several days prior about free speech on twitter. If anything, it at least shows perhaps willingness to go along with musk's joke. On april 5th, the next day perog announced that they were appointing elon to the company's board of directors as a result of his large stake in the company.

He even went as far as to say that musk is a quote, passionate believer, unquote in the company and quote exactly what we need on twitter unquote. Although public statements like this will always try to convey the best about any given relationship, it definitely seemed like perag and musk had a friendly working relationship. So it came as somewhat of a surprise when the board took the rather extreme action of adopting the poison pill against musk after a unanimous vote. Well, it could be that other members of the board had a worse relationship with musk than perag.

It could also have been a product of private conversations between the board and musk himself. There were signs that musk was taking a more adversarial stance against twitter, for example, just a few days after being welcomed onto twitter's board, he decided not to join. On april 9th, prague said that musk had decided not to join the board on the morning of the day when it was supposed to go into effect. Interestingly, perrock also said that he quote believes that this is for the best unquote whatever that means.

There are several reasons why musk may have decided not to join the board. Some commentators said that perhaps he learned about how difficult it is to be part of twitter's leadership, given their languishing stock price and inability to effectively monetize their platform. However, a more likely reason seems to be a particular clause outlined in an sec filing following musk's appointment to the board. It's said that the agreement with musk specified that musk will not acquire a stake in the company worth more than 14.9 percent, while he's on the board and for 90 days afterwards by not joining the board, he would maintain his ability to build up a stake worth More than 15 percent of the company musk has given indications in the past that he wants major changes at twitter.

On march 25th, he put out a twitter poll asking his followers if they think that twitter rigorously adheres to the principles of free speech. Only about 29.6 percent of respondents said yes, he also responded to his own tweet. Saying quote: the consequences of this poll will be important. Please vote carefully unquote the same response that perog made to musk later pull about twitter, adding an edit button, but regardless it shows that he is someone who believes that twitter shouldn't be doing as much censoring as it does.

This is an issue that has become very controversial, especially after twitter, took the unprecedented step of booting then-president donald trump from the platform in 2021. Musk has also shot back at critics of his attempt to change twitter yishan wong, a former executive at reddit tweeted, an extended thread saying why musk would be putting himself in a world of pain if he succeeds in taking control of twitter musk's response to the entire Thread was that twitter needs a better way for people to write, long form tweets. He also took shots at the twitter board of directors saying that, because their collective stake in twitter, excluding jack dorsey, is less than one percent. Their interests are not economically aligned with shareholders.

He also torched the board with a poll asking his followers. Whether twitter's board of directors should have the authority to decide whether or not to take his 54 20 per share offer, as opposed to the shareholders. 83 of respondents said that the decision should lie with the shareholders even outside of elon musk's, 82 million loyal followers. It seems that most of twitter's investors would be in favor of must taking control of the company, although once thought of as one of the leading social media companies coming to fame in the early 2010s.

Alongside the likes of facebook, its stock has been a comparative disaster. In almost an entire decade since going public, the stock is up a measly eight percent. Compare that to facebook, which now calls itself meta platforms. Facebook went public around the same time as twitter, but has since seen its stock price outpaced twitters by a factor of 40..

Investors have long since, given up on twitter's management, as they have proven unable to push the company to the levels of profitability as some of its peers. The problem isn't: user growth. The issue is their inability to monetize their users as effectively as facebook, while their revenue has been steadily increasing over the past decade, so too, of their expenses. After subtracting things like sales and marketing in r d, they have never really been consistently making a net profit.

The chart of their quarterly net income going back several years, makes that painfully obvious and investors have been frustrated with the lack of progress in 2020 elliott management, one of wall street's biggest most successful and most feared activist hedge funds started an activist campaign on twitter. They acquired a large stake in the company, along with representation on their board of directors. One of their pushes was to oust founder and ceo jack dorsey, who they said was spread too thin due to his interest in his other, more successful company square and his general involvement in the crypto community in november of last year. They succeeded in ousting dorsey, but in the less than six months since then, the new ceo hasn't been able to make any measurable improvements to quote investor frustration.

Yet elon musk has not publicly unveiled a plan to jump start twitter, but many investors view his takeover bid. As a win-win, his offer of 54.20 per share represents a 20 upside to the current share price of about 45 dollars. A share for anyone, but a die hard believer in the company. It might be tempting to just say, take the money and run and while musk's area of expertise is primarily in technology, his entrepreneurial and business track record is virtually unrivaled if he can bring the same energy to his approach to running twitter as he did with tesla Spacex and paypal - some just might say that he's twitter's best hope of catching up for a lost decade, right guys that wraps it up for this video.

What do you think about elon musk's offered to buy twitter? Do you think twitter's board should accept it? Let us know in the comments section below in the meantime. Thank you so much for watching and we'll see in the next one wall, street millennial signing out.