Twitter has adopted a "poison pill" to limit Elon Musk's ability to raise his stake in the social media platform, as a buyout firm emerged to challenge his $US43 billion ($58 billion) bid for the company.
Twitter said on Friday it adopted the poison pill that would dilute anyone amassing a stake in the company of more than 15 per cent by selling more shares to other shareholders at a discount.
Known formally as a shareholder rights plan, the poison pill will be in place for 364 days.
The move would not bar Mr Musk from taking his offer directly to Twitter shareholders by launching a tender offer.
While the poison pill would prevent most Twitter shareholders from selling their shares, the tender offer would allow them to register their support or disapproval of Mr Musk's offer.
Private equity firm exploring possible bid
Meanwhile, Thoma Bravo, a technology-focused private equity firm that had more than US$103 billion in assets under management as of the end of December, has informed Twitter that it is exploring the possibility of putting together a bid, people familiar with the matter said.
It is not clear how much Thoma Bravo would be prepared to offer and there is no certainty that such a rival bid will materialise, the sources cautioned, asking not to be identified because the matter is confidential.
A Thoma Bravo spokesperson declined to comment, while Twitter representatives did not immediately respond to a request for comment. The New York Post reported on Thursday that Thoma Bravo was considering a bid for Twitter.
Thoma Bravo's interest raises the spectre of more private equity firms vying for Twitter. The global private equity industry is sitting on about US$1.8 trillion of cash reserves, according to data provider Preqin.
Unlike major technology conglomerates, most buyout firms would not face antitrust restrictions in acquiring Twitter.
Musk could partner with private equity
It remains possible that a private equity firm will boost Mr Musk's bid by partnering with him rather than challenging him.
Mr Musk's criticism of Twitter's reliance on advertising for most of its revenue, however, has made some private equity firms apprehensive about teaming up with him, industry sources said.
This is because a strong cash flow makes financing a leveraged buyout much easier.
Silver Lake, a private equity firm with more than US$90 billion in assets under management, would be a natural partner for Mr Musk because it offered financing for his US$72 billion bid for Tesla Inc four years ago, which Mr Musk subsequently abandoned. Silver Lake co-chief executive Egon Durban also sits on Twitter's board.
But Mr Durban did not recuse himself on Thursday when Twitter's board met to discuss Mr Musk's offer for the first time, people familiar with the matter said, in a sign that Silver Lake has not sought to team up with Mr Musk or make a bid of its own thus far.
It remains possible that Silver Lake will choose to become involved as a buyer. A Silver Lake spokesman did not immediately respond to a request for comment on Friday.
'Best and final offer'
Twitter has more than US$6 billion of cash on its balance sheet and its annual cash flow is close to US$700 million, providing some comfort to banks considering whether they should provide debt for a deal.
Still, a leveraged buyout for Twitter could be the biggest of all time, potentially requiring several buyout firms and other major institutional investors to team up.
Mr Musk is the world's richest person with a net worth pegged by Forbes at US$265 billion. He has however drawn a line on how much he is willing to pay.
He informed Twitter on Wednesday that his US$54.20-per-share all-cash bid for the company was his "best and final offer", and that he would reconsider his position as a Twitter shareholder if it was rejected.
Mr Musk owns more than 9 per cent of Twitter, making him the largest shareholder after mutual fund giant Vanguard.
Twitter's board is still assessing Mr Musk's offer and would only put it to the company's shareholders for a vote if it approves it.
Reuters
