Twitter is taking a step to discourage hostile takeover bids and effectively stop Tesla and SpaceX CEO Elon Musk’s offer to buy and privatize the company to make it a frontier of free speech. 

The board has set up a shareholder rights plan, which is exercisable if a party buys 15% of stock without prior approval, and is valid for one year only. As per a statement, Friday, this plan ensures anyone who controls Twitter via open market stock accumulation, pays shareholders an appropriate control premium.

Also Read | Why Elon Musk wants to buy Twitter: Explained

This step intends to buy time, Bloomberg reported, citing a source with knowledge of the matter. Twitter’s board of directors wants to study the deal and might even accept it. 

“The Rights Plan does not prevent the Board from engaging with parties or accepting an acquisition proposal if the Board believes that it is in the best interests of Twitter and its shareholders”, the company statement reads. 

Musk, after acquiring a 9% stake in the company, which at the time made him the largest shareholder, turned down an offer to join the board of directors. He then launched the takeover bid at $43 billion. 

Since then, existing Twitter board member and billionaire, Saudi prince Alwaleed bin Talal, has already expressed his intent to reject Musk’s offer saying the deal does not “come close to the intrinsic value” of Twitter. 

Also Read | What NFL star Tom Brady wants from Elon Musk if he buys Twitter

Musk was also dislodged as the largest single shareholder when funds held by the Vanguard Group upped the stake in the social media company. 

Twitter’s poison pill defence strategy: Explained

A poison pill defence strategy gives the right to existing shareholders to buy more shares at a discount, which dilutes the hostile party’s ownership interest. 

This is common in companies battling activist investors or hostile takeovers. 

Also Read | Twitter not ‘held hostage’ by Musk’s offer: CEO Parag Agrawal tells staff

For Twitter, the stakeholder can purchase, at the then-current exercise price, more shares of the common stock, with the then-current market value of twice the exercise price of the same.