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Comment by HWR_14 | Hacker News Reader

I'm not going to speak to the legal technicalities, but I can tell you some major differences in the situations.

- The poison pill is aimed at any investor trying to gather control, not a specific one. (At least legally)

- The poison pill is 100% avoidable. It triggers off some future event. This is similar to many other grandfather clauses like building codes, where things are changed going forward.

- 49% bought in thinking they were getting a share and a say in the company. Diluting them away is stealing and fraud (morally, not legally.) So, for instance, would be selling all the companies assets to Company 2 run by the same CEO and board (and who own 100% of Company 2) and letting Company 1 go bankrupt.

The situation is actually identical if Elon were to suddenly tomorrow purchase up to 49%. In that case, it would be the 51% diluting the 49%.

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> So, for instance, would be selling all the companies assets to Company 2 run by the same CEO and board (and who own 100% of Company 2) and letting Company 1 go bankrupt.

IANAL, but this is actually theft - Minority shareholders have rights if a company is liquidated, and the courts are smart enough to recognize "Reorganize all assets under a new company owned only by the majority shareholder" as being that liquidation. As far as I'm aware, States Attorney General are the ones to prosecute this crime, so file a complaint there.

I would imagine there is definitely a course of civil action. I honestly don't know (but assume) that criminal action would probably depend on exactly how it was done. After all, Holmes's Theranos trial turned on federal wire fraud charges.

Absolutely - Everything is legal until you're caught. How easy it is to catch you and how easy it is to prove in a court of law are what matters.

As today's Money Stuff[1] opines - This kind of transaction can be really easily made legal, while still giving investors the middle finger. If the company is worth X, you takeover the board and carry out a merger that cashes out minority stakeholders for $1, you're liable for X. If the company is worth X, you takeover the board, and carry out a merger that cashes out minority shareholders for X * .8, you've got a good chance of getting away with it - The standards is "business judgment" vs "fiduciary duty". Companies have fiduciary duty to all shareholders. Sometimes that means that the board gets to dissolve the company for a lot less than it's worth.

[1] https://www.bloomberg.com/opinion/articles/2022-04-18/twitte...

> The poison pill is 100% avoidable

Can you please elaborate on this? How can it be avoided?

It prevents a hostile takeover. It doesn't prevent the company from agreeing to be sold. It theoretically offers protections to negotiate a sale without the buying party having the ability to circumvent that negotiation.

The poison pill (in Twitters case) dilutes any shareholder who acquires more than 15%. (In practice, it's not automatic, but it's what happens). No shareholder currently owns more than 15%. Therefore if anyone doesn't want to trigger this (like Elon Musk) he can avoid dilution by not buying any more shares.

It's there to say "no individual can legally own more than 15% of Twitter" as someone is starting to buy Twitter up. Not say "we're going to explicitly screw Elon Musk after he bought 25% of Twitter."

Can Elon and three of his "friends" own each 14.9999% of Twitter without triggering the poison pill, so getting to 59.999%?

Or could Elon setup 4 separate companies/trusts that each own 15%?

No. The law understands those are 4 companies all operating for Elon's benefit

Long story short: the lawyers thought about this decades ago.

See the definition of "Acquiring Person" in the rights agreement; it's the first definition in the document.

Would it change anything if Elon already (indirectly) controlled more than 15% as a poison-pill-anticipation measure, but just said he controls less?

If he lied when they were setting up the poison pill, Twitter'd probably win the inevitable court case, and he'd get in trouble for misrepresenting his position.

In my hypothesis, which is of course entirely hypothetical, he didn't lie when he said "I control 12% of Twitter".

Sure he did. The law recognizes his indirect control as possibility and all the SEC forms specify when they ask how much he controls they're including via those mechanisms.

I mean, if he owned some Google stock, and Google decided to buy 1% of Twitter, that would probably be different, because Elon wouldn't own enough of Google to make them do anything or even be aware of their investments. But if Tesla did, or he bought index funds that included Twitter, then yes.

I understand, thanks. Just wanted to be sure: did he have to necessarily fill out these forms before he said "I control x% of Twitter", or could it be that he didn't have to fill them out, and in practice didn't fill them out?

it's possible that the filing has a few days deadline after the event

> Can Elon and three of his "friends" own each 14.9999% of Twitter without triggering the poison pill, so getting to 59.999%?

I'm guessing not: 1) if it were that easy to circumvent, it would be a pointless tactic that wouldn't be bothered with; and 2) I haven't read the actual language, but IIRC some articles that have described it as also including "family members and individuals acting in concert."

A good rule of thumb is: if it took you a short amount of time to think of a "cleaver trick" to defeat something "important," your trick most likely doesn't work. That's either because it fails for reasons you haven't through of or someone already thought of it and countered it.

I think the answer is if Elon can convince Bezos, Gates and Brin that it would be a fun thing to do, they can. If Elon loans you $6 billion to buy 14.9999% of Twitter because you are such good friends it is not something you can do.

For that matter, if Elon promised Bezos, Gates and Brin they would make money on the deal (as opposed to doing it because it would be fun) it would also not be something they could do. Promise is doing a lot of work there.

>it is not something you can do.

Says who? What's the penalty? Some silly fine?

Elon loves to do exactly that, he does it now just to style on the SEC with how rich he is.

> What's the penalty? Some silly fine?

First, off, this conversation is about triggering the poison pill. So in this case, it would trigger.

That's what the conversation is about.

But since you want to focus on incentives:

That's an immediate dilution of his (and his compatriots) shares until their combined percentage was 15%. Additionally, they can be subject to a shareholder civil suit by anyone who sold the them shares for any increase in value between the time when they sold the shares and the information came to light. Additionally, they can be subject to a shareholder civil suit by any shareholders for any decrease in value of their shares after that information came to light until endtime fuzzy. Additionally, a civil injunction preventing them from taking the company private, preventing their scheme from allowing them to do so and rendering their actions pointless.

Those are just the people who stand to make billions from any of those actions. The SEC can also pursue it's own charges, but since they won't individually make billions, they are less likely to do so.

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