Are hostile takeovers morally acceptable?

Dylan Merideth
17 replies
I realize this is a free market, for all intensive purposes. But is it right? There has been more public discussion around this given recent events in various social networks, curious about what you all think.

Replies

Dylan Merideth
I am struggling to find a single position on the topic, I feel like if someone wants to buy something and seller accepts offer, then that course of events should be respected. But I also know that these types of things aren't so cut and dry; as leverage, social sentiment, and macroeconomic factors tend to confound the simple moral truths
Solomon Bush
Unfortunately, this is the downside of going public. :( However, Twitter is not a stranger to acquisitions, from what I found they have acquired 67 companies. https://en.wikipedia.org/wiki/Li... So, I don't think this is a morality issue, I think it's more an issue of Twitter's management & core investors over-diluting their shares.
Dylan Merideth
@solomon_bush I see what you mean, live by the sword and "die" by the sword. I am still learning about M+A , so do you mind elaborating on what the over-dilution of shares means in this context?
Solomon Bush
@dylan_merideth Absolutely! So first, I want to share a tweet from Jack Dorsey, founder of twitter. https://twitter.com/jack/status/... He said, "as a public company, twitter has always been "for sale." that's the real issue." So, whenever you go public, you open your company up to the free market, and this means that anyone that is able to trade on that market can in theory purchase every outstanding share. Twitter is listed as NYSE:TWTR, which means it can be purchased by any valid investor on the New York Stock Exchange. This is opened up to most of the world. So you can get a lot of investors, and make a lot of cash. But here is where the "over-dilution" comes in... Here is a blog post from a trader from 2018 talking about Twitter's over dilution. https://seekingalpha.com/article... 2018... Investors have been complaining about this for years. But Twitter's board continued diluting. There are a ton of articles out there like this. Twitter was dilluting at 300% the rate that FB, and 600% the rate of Google. Which is pretty wild. That article is super long, but long story short, a public company essentially prints it's own currency in the form of shares. Then sells those shares to convert them to operating capital. When they print to much, and sell/issue to many, than they hold less. When you hold less, than an investor has to acquire a smaller portion to obtain majority leverage. So, Twitter kind of screwed themselves. :/ Especially with all the hard political stances they have been taking. You never want to create enemies when your company is weak.
Dylan Merideth
@solomon_bush wow, thank you so much for the enlightening explanation. So the poison pill defense is additional dilution that is triggered by the ownership percentage condition... So another question then, why does Elon have to issue an offer that has to be accepted? Is this because the board is an agent that represents all shareholders?
Solomon Bush
@dylan_merideth No problem! I am by far no expert on these types of things. But ever since I began to build LogHarvestor, I have been trying to consume as much as I can on how startups work. Also, I work full time as a software engineer at a tech company that just IPO'd last year. So I kinda had to learn about some of this stuff for tax purposes lol. But yeah I think that your point pretty much sums it up :) As far as why Elon has to make an offer to the board of twitter, that's actually a good question. Let me look that up and I'll get back to you!
Solomon Bush
@dylan_merideth Okay so from what I can tell he doesn't actually have to get the board to accept his offer. He just needs to get enough institutional investors to sell them his shares, or roll over their shares into the privatization of Twitter. I don't fully understand how this works, but here is an article from Bloomberg that I found that kind of lays out the roadmap for how he can do this. https://www.bloomberg.com/news/a...
Luka Vasic
A tricky topic. The old saying says "All is fair in love and war". Well, business can sometimes be seen as a war. It's a free market and everyone tries to get a piece of it. In my opinion no they are not morally acceptable.
Dylan Merideth
@luka_vasic Thats an interesting point, after learning more, I realize there is a significant difference between acquisitions and hostile takeovers that wasn't obvious to me when I posted. War can be fought honorably, or dishonorably, and its the method by which a business is acquired that determines the perceived ethics
Luka Vasic
@dylan_merideth Hmm that's a nice conclusion to this analogy, didn't come to my mind.
Nicole Ogloza
If you have everything planned out, hostile takeovers shouldn't be a problem.
Solomon Bush
@nicole_ogloza Completely agree! This was a result of poor financial defense.
Dylan Merideth
@nicole_ogloza Doesn't the defense they've chosen further weaken them against future conquerors as well?
Nicole Ogloza
@dylan_merideth there are always white knights that can protect that. There are so many situations where hostile takeovers are preventable. Know your numbers!