According to the latest news:

Musk, the chief executive of Tesla and the world’s richest person, had offered to buy the social media platform for $43.4bn, arguing he wanted to release its “extraordinary potential” to support free speech and democracy across the world.

In response, Twitter’s board on Friday unanimously approved a plan that would allow existing shareholders to buy stocks at a substantial discount in order to dilute the holdings of new investors.

The method, known as a “poison pill” in the finance world, suggests Twitter will fight Musk to prevent a hostile takeover. It would go into effect if a shareholder were to acquire more than 15% of the company in a deal not approved by the board and expires 14 April 2023.

But... how is it legal for a company to target just one shareholder for dilution? Does this mean a company could just sell Twitter stock for $1/share until Elon's share becomes tiny?

  • Twitter is trying to counter Elon's argument that rejecting his deal would cause financial harm to the shareholders. They're giving the existing shareholders an option to realize the same gain without accepting Elon's offer. In essence, they make Elon's offer they cannot refuse to offer they now can refuse.
    – littleadv
    Commented Apr 15, 2022 at 18:35
  • @littleadv that makes sense but I fail to understand how it could possibly be legal to single out one of your shareholders for any scheme of this sort... Commented Apr 15, 2022 at 18:39
  • 2
    There's a reason why hostile takeovers are called hostile.
    – littleadv
    Commented Apr 15, 2022 at 18:41

2 Answers 2


From the NY Times:

A poison pill is officially known as a shareholder rights plan, and it can appear in a company’s charter or bylaws or exist as a contract among shareholders.

There are different types of poison pills, but usually, they allow certain shareholders to buy additional stock at a discounted price, said Ann Lipton, an associate professor of law at Tulane University.

The only shareholder blocked from making these discounted purchases is the one who triggers the poison pill. It is triggered when a person, usually the acquirer, hits a threshold for how many shares they own. If they hit that threshold, the value of their shares is suddenly diluted as other shareholders make discounted purchases.

I'm posting this because the other answer is incorrect as to how a poison pill works.

As to why it's legal, I feel that it shouldn't be but powerful people have fought over this, and the courts say it is legal.

Note that the poison pill itself doesn't explicitly target Elon Musk. It targets any shareholder with at least 15% of Twitter stock. Though we all know that the Twitter board is targeting him.

  • So... how exactly is my answer incorrect? I said nothing about how the poison pill works, I answered the question of legality.
    – littleadv
    Commented Apr 16, 2022 at 19:29

Dilution of shareholders has always been legal, and is very pertinent in the startup world. Jack Dorsey, the founder of Twitter, owns only 2.5% of it because he was diluted, not because he sold 97.5% of his shares. In startup world the dilution is targeted towards existing shareholders to benefit the new investors, in this case the roles are reversed but the principle is the same.

  • 1
    Sure, but Jack was never prevented from participating in financing rounds of Twitter, right? So if hypothetically Jack was an investor in all of Twitter's financing rounds, he would still keep a big chunk of it? In this case its just singling out Elon alone for dilution. Commented Apr 15, 2022 at 18:39
  • They're not singling out Elon, they're setting a date after which new owners cannot benefit from the offer. That includes not just Elon, but also all the people trying to capitalize on his offer and buying Twitter stock in the anticipation of the takeover
    – littleadv
    Commented Apr 15, 2022 at 18:40
  • @JonathanReez re financing rounds.... It is very likely that Jack was in fact prevented from participating in financing rounds. In startup world, founders are not necessarily allowed to match investments, even if they wanted and could afford to. This is specifically to entice investors to take the risk - if they have to share the benefit with the founder, they'd be at a disadvantage since the founder is actually running the company and can affect it, while the investors at most can appoint maybe a director. Diluting the founders gives them much more ability to affect the course.
    – littleadv
    Commented Apr 15, 2022 at 18:44
  • 2
    I think a more apt analogy would be if only Jack's shares were diluted but everyone else weren't. AFAIK that's what Zuckerberg tried to do to his original business partner and later lost the lawsuit over the practice. In this case its just Elon who's getting diluted. Commented Apr 15, 2022 at 18:46
  • 1
    @JonathanReez no, it's not. As I said, they set a date and only allow the benefit to owners who had the shares before the date. I'm sure Elon will sue, we'll see how this plays out.
    – littleadv
    Commented Apr 15, 2022 at 18:47

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .