The company adopted a poison pill that makes it difficult for Musk to increase his stake beyond 15 percent.
The Rights Plan was adopted by the board after a proposal to acquire the company was made.
The Rights Plan will reduce the likelihood that any entity, person or group gains control of the company without paying all shareholders an appropriate control premium or giving the Board enough time to make informed decisions.
If the Board believes that it is in the best interests of the company and its shareholders, the new shareholder rights will be triggered.
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.
Musk was briefly the largest shareholder with his 9.2 percent stake.
A poison pill defense strategy allows existing shareholders the right to purchase additional shares at a discounted price, which reduces the ownership interest of the hostile party.
If the current board takes actions contrary to shareholder interests, they would be breaching their fiduciary duty, Musk wrote Thursday. The liability they would assume would be titanic in scale.
In a February 2022 SEC filing, the company said that the bylaw could have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable by the board of directors. That includes a classified board of directors whose members serve staggered three-year terms, and the ability to issue preferred stock without stockholder approval.
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