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2. Why is it even allowed (by the government) to decide the share price at the board meeting? These shares don't belong to them, somebody has purchased them already. And these people have decided what the shares are worth, that's kinda the definition of "market price". The board didn't decide that, market did. If they want to get these shares back it sounds only fair that they should have to pay what the new owners consider the fair price, whatever it is.
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This is the part I don't get. The person who bought 51% of shares is also a shareholder. How come the board can discriminate against a single owner like this, just taking away their shares by force. Could they do it to any existing owner if they wanted?
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This is confusing. During the TWTR discussions, one that regularly came out is the importance of a board's fiduciary duty. Buying 51% doesn't let you take the company private, and merging at 50% of the price seems like a monumentally indefensible decision, especially when it is with the 51% holders company. I find it hard to believe you can get away with that.
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Shares aren't a blockchain, you can't just perform a 51% attack.
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https://www.lw.com/thoughtLeadership/the-latham-and-watkins-...
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As others have mentioned, Twitter has a staggered board, meaning not all board members are up for election at the same time. Replacing the board would take years in a hostile takeover.
Patrick Boyle did a great video on this which is slightly less relevant now that the board has accepted the offer but still is a reasonable intro to corporate governance:
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51% of a company is not some magic ticket that allows you to do basically anything (including screwing the other 49%). It just doesn't work that way. There are certain thresholds that allow you to do more and more things but if you're in control of a company you still have a fiduciary duty to the other shareholders, even small minority shareholders. This is why minority shareholder lawsuits are a thing. This is what makes the entire corporation system work otherwise the 51% would be constantly screwing over the 49%.
Take your example: if you buy 51% of the shares for $50/share and then try and merge at an effective $25/share. Well, that's illegal because you've failed your fiduciary duty to the 49%. You're effectively trying to steal from them.
Also, you can't just acquire 51% of a company. There are rules about that too. There are thresholds here too. IIRC more than 5% and you have to inform the market of taking a large position. More than (IIRC) 10-20% and you have to launch a formal takeover offer. There are rules about how that works too.
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Besides, when the 51% owner decides to merge at a lower price, can't other shareholders simply refuse to sell?
All this makes it sounds like shareholders have a lot less power than I used to think they had.
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Alternatively, the board would keep creating shares as the hostile actor attempted to buy more. Keeping the price the same or higher. Eventually the hostile actor would still take the company but at a much higher initial cost. Once purchased they could still do a merger (51%).
At the end of the day it simply forces the hostile actor (in the sense of buying shares) to pay more.
In this case, the board basically had to sell. Else they’d open themselves to lawsuits anyway. If Musk had a failing bid. He’d dump 10% and instantly the price would be down 40-60%, plus people would lose confidence and drop further. Then the board would be open to failing to do their job as representatives of the share holders.
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Then they can do things like 'merge' the company with some other company they own at a board-approved value-per-share. That value will be much lower than what they paid per share when buying it on the open market, but not so low that the government gets involved. Eg: Musk buys the shares at $50/share, and then 'merges' the company at $25/share, effectively forcing 49% of the shares to be sold at half price. Those shareholders get screwed because they didn't sell their shares during the initial takeover.
Edit: Or, just run the company however they want and share the profits with the other 49%, but ignore their votes, etc.
The Poison Pill says "If a hostile takeover starts, we'll create and sell new shares at a reduced price to existing shareholders- other than the attacker- to prevent the 51% scenario". This is done not to prevent any takeover, but in the interest of the 49% of holdouts who would have been screwed over. It's an effective block against the takeover.
The board represents ALL the shareholders, after all. They don't want to see anyone get screwed.
But now Musk has made a deal that the board has approved. All shareholders get a specific price that is approved. The board wants this to happen, so there's no poison pill.