(本文翻譯自 陳冲 毒藥丸終非善策 2022-04-01)
Elon Musk is undoubtedly a controversial person, but without him the market would not be so interesting. Investors and the media probably love him but hate him, too. It reminds me also of the Russia-Ukraine war.
The latest news about Musk, in addition to Tesla’s earning report on Apr. 19th, must be Musk’s offering to buy Twitter for about $43.5 billion. $43.5 billion is of course a huge amount and it also means $54.2 a share, a 54% premium. Trapped beasts still fight, let alone Twitter. As predicted, two days later, it’s reported that Twitter board adopts “poison pill”. Poison pill, as the name suggests, means that you can't swallow it or you will suffer pain once you decide to swallow. Similar meaning as the Chinese proverb goes, rather be a broken piece of jade than an intact tile.
The poison pill is a well-known anti-takeover strategy in the US capital market. Another elegant way to say is shareholder rights plan. It was invented by lawyer Lipton 40 years ago and reaffirmed by the Delaware Supreme Court in 1985. The main idea is that when a hostile acquirer holds a certain percentage (15%-20%), the company can issue a large number of new shares (usually discounted shares) to all shareholders except those who trigger the provision to dilute the holdings of those who tend to take over the company, increasing the difficulty and cost so that even if they successfully take over the company at the end, they would also pay a great price. Poison pill was once quite popular in American practice circle but have gradually declined recent years since it is controversial and may affect company ratings while damage corporate governance.
Some people have also proposed poison pill clause before in Taiwan, but Article 267 of the Company Act stipulates that when a company issues new shares, in addition to those reserved for employees, based on the principle of equal treatment of shareholders, other would subscribe for new shares in proportion respectively to their original shareholding. In other words, the toxicity of the poison doesn’t work to dilute the holdings. In brief, there is no legal basis for poison pill strategy in Taiwan. Some experts suggest to implement private equity countermeasures according to Article 43-6 of the Securities and Exchange Act, but it requires shareholder resolution and the targets of private equity are also restricted, so the effect is not as good as poison pill.
Based on affection, reason and law, if the company doesn’t want others to take over by tender offer, the basic strategy might be strength principles. When major shareholders hold sufficient share, others would naturally not dare to covet it. Secondly, if the company performed well, small shareholders would just show their loyalty, waiting for the company to bring them to another high level in terms of stock price. And even higher level is that once the corporate governance proves to be excellent, foreign investors and legal persons would highly respect it and not consider bearding the lion in his den. If there is a hostile takeover, the American companies would resort to shareholder rights plan (the poison pill), and sometimes with laxatives like golden parachute, white knight or private equity to made the hostile takeover bristling with difficulties, as if going through steep mountains and crossing deep seas. However, this kind of Seven Injuries Fist strategy is definitely not good for the company’s long-term operation, so the industry generally believes that poison pill is not the best choice.
Can Musk take Twitter in the end? Well, we just watch the fire from the other side. But this news does have some enlightenment on international situation now. Take the Russia-Ukraine war for example, the previous Ukrainian presidents are controversial as the country is abundant with natural resources but the GDP per capita is less than 4000 US dollars. It’s just like an asset stock with so-so performance, and after the market invades, Ukraine used its long-stored poison pills to fight (including asymmetric warfare, US/NATO financial sanctions, R-360 Neptune, etc.), causing lots of troubles to the Russian army. Some people compare Taiwan to Ukraine while some people say that Taiwan is not Ukraine. No matter how, it’s generally recognized that Taiwan is a blue chip stock and plays a vital role on the global value chain impacts great. As long as we have good governance and good government, there is no need to rely on strange poison pills facing takeover.
(Released on United Daily News, Apr. 1st, 2022)