SAN FRANCISCO — Twitter moved Friday to block tech baron Elon Musk's proposed takeover of the social media company, adopting a strategy known as a "poison pill" that's often used to intercept hostile corporate bids.
The Twitter board of directors voted unanimously to adopt the strategy, which is formally known as a shareholder rights plan, the company said in a statement posted online.
The "pill" would be triggered if Musk attempts to buy at least 15 percent of Twitter shares on the open market; currently, the Tesla CEO owns about 9 percent of its stock.
Should the 15-percent threshold be crossed, Twitter's other shareholders — excluding Musk — would be granted the right to purchase additional shares at a discounted price, diluting the overall value of Twitter's stock.
Markets were closed Friday in observance of Good Friday. Twitter shares closed at $45.08 on Thursday
The social media company did not announce at what price shareholders would be able to make those additional stock purchases, but said more details would be forthcoming in a follow-up securities filing.
"The Rights Plan will reduce the likelihood that any entity, person or group gains control of Twitter," the San Francisco-based company said in its Friday release.
Arun Kumaraswamy, a business and management professor at the Florida International University College of Business in Miami, said the effect of the poison pill is to make Musk's bid more expensive, since he would be locked into buying shares at the price he initially offered — $54.20 per share.
"The goal is to preclude him from being able to pay what he has offered to pay," Kumaraswamy said.
At the same time, Kumaraswamy added, Twitter is attempting to convince its other shareholders that Musk's offer of more than $40 billion is not in their interest, by indicating a higher price could be commanded by some other bidder.
Several news organizations including Bloomberg had reported Thursday that the Twitter board was considering the poison-pill defense. The strategy allows existing shareholders other than the person attempting the takeover to buy additional shares at a discount, diluting the equity of someone like Musk.
Musk on Thursday announced an offer to buy Twitter in a more than $40 billion deal that would take shares of the company's stock off public markets and give Musk complete control. He said Twitter's rules for online speech had become too burdensome, choking off some public debate that should be heard even if it's hate speech.
Twitter did not comment on the details of Musk's proposal, and the company kept open the possibility of reaching a deal for a possible takeover.
"The Rights Plan does not prevent the Board from engaging with parties or accepting an acquisition proposal if the Board believes that it is in the best interests of Twitter and its shareholders," the company said.
Twitter's annual shareholder meeting is scheduled for May 25, an event that could provide another forum for Musk to air his grievances or seek to influence Twitter's direction.