It has been a wild ride for investors in the social networking site.
In just two weeks, Musk became one of the social media giant's largest shareholders, said he was joining the board, and then launched a hostile takeover bid.
The company is trying to maintain its independence. Management enacted a limited duration shareholder rights plan on Friday in case it wants to ward off Musk.
Why would a company take a poison pill?
The dawn of the corporate raider, a type of investor who used inventive financing to pursue takeover targets that would have previously been too expensive, dates back to the early 1980s.
Raiders would buy a large portion of a company's stock and then threaten to take over the whole company. If the takeover succeeded, they would often end up selling parts of the business to raise money for their buyout, firing workers, or splitting up the firm into different entities.
The poison pill is named after the deadly pills used by spies to avoid interrogation if they were captured. Even if the world's richest person is a corporate raider, one of the most prominent M&A lawyers came up with a defense.
The poison pill is used to make a proposed acquisition less appealing to the potential buyer.
The flip-in and flip-over strategies are the two forms of the tactic. The flip-in strategy allows current shareholders to purchase additional shares at a discount. The deal is less appealing because of the immediate profits for shareholders and a stake in the company.
If the takeover is successful, shareholders of the target company can purchase shares of the acquiring company at a discount. The deal is less appealing for the company threatening a hostile takeover because the equity in the acquiring company is diminished.
Carl Icahn, one of the most famous corporate raiders of the 1980s who is now worth over $16 billion, tried to take over the company in 2012 using a poison pill. The company's shares flooded the market, making it expensive for Icahn to complete an acquisition.
The flip-in poison pill strategy was enacted by the company in an attempt to prevent Musk from acquiring the company.
Current shareholders will be allowed to purchase additional shares at a discount if any person or group acquires at least 15% of the common stock without the board's approval.
The Rights Plan will make it less likely that any entity, person or group will gain control of the company without paying all shareholders an appropriate control premium or giving the Board enough time to make decisions that are in the best interests of shareholders.
It appears that the 1980s-style corporate raider tactics of Musk have triggered an equally retro defense strategy from the company.
The poison pill isn't the only strategy that is being used to counter Musk's offer. Mark Cuban said that it may look for a white knight to counter Musk's offer and buy the company.
Every major tech company is on the phone with their anti-trust lawyers, asking if they can buy Twitter and get it approved. The lawyers are on the phone with the social network. Cuban wrote on Thursday that it would be interesting.
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