Elon Musk decided to take over Twitter. Twitter has 50 million stocks outstanding with a current price
Question:
Elon Musk decided to take over Twitter. Twitter has 50 million stocks outstanding with a current price of $40 per share.
On 1/07/2022 Musk offered $48 per share conditioned on buying at least 50% of Twitter's outstanding shares.
A week later Musk bought 20% of the shares. The management of Twitter held an emergency meeting and decided to activate a poison pill. According to the poison pill conditions if one party holds more than 20% then additional stocks will be issued for all equity holders except that party (i.e., Musk) in a 1:2 ratio for a subscription price of $20. That is, for every two old shares an investor will be able to buy one new share.
Requirements: (show all calculations)
- Can you determine whether it is an on-market or off-market bid?
- If Musk ignores the poison pill and decides to buy an additional one per cent of Twitter shares
- How much money will he lose due to the activation of the poison pill?
- Calculate the new price of Twitter shares
- What will the effect of the activation of the poison pill be on Musk's voting rights?
Essentials of Investments
ISBN: 978-0077835422
10th edition
Authors: Zvi Bodie, Alex Kane, Alan J. Marcus