What is poison pill explained, Poison Pill Twitter Strategy - Hindi - YouTube

Hello, Friends welcome to today's episode.

We are going

to discuss a very poppular concept in news.

You must have heard that twitter is planning to use

Poison pill strategy.

Today we'll discuss

what is poison pill strategy?

will it save twiter?

Or it'll kill twitter.

Let's learn this in detail in the video.

the poison pill

strategy is very old. This was coined by spies in world war. They had fear if they get caught they'll be introgated badly and

so they take poison pill and get martyr.

but in corporate finance, in 1980s new york's law firm wachtell lipton rosen and katz

it's a tough name.

they discovered it ,the famous corporate lawyer names Martin Lipton

he named this terminology in 1982 but

for a long time this strategy poison pill was not in the use.

recently it was discovered by netflix in 2012 when it was implemented.

to protect the company from hostile takeover.

so let's understand basically what is it all about

before this lets understand 2 concepts

whenever takeover happens or any company acquires a company,then what happens

see one company is purchased, it is called TARGET COMPANY in this concept.

second company which is acquiring, the one who is acquiring generally , buys the target company

now buying happens in two phases, friendly purchase means a target company

board of directors approve that a big company takesover our company and supports us.

company will get merged with a big company.That's good thing.

another is hostile takeover in our case is Twitter,

that doesn't wants to get takeover.

so to save them, poison pill strategy is used.

now what is this poison pill strategy in detail with example in this video.

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poison pill strategy is of two types first is flip-in strategy

this is being implemented by Twitter, will explain in detail.

this allows shareholders, of the target company, they are given right

what is the right? that you can discount the shares of the company but the takeover company

acquiral company, in this case it is Elon Musk he is not given this right.

another shareholders have the right to buy the shares of the company on discount.so i will explain full calculation with example.

so this right to purchase is given before the takeover,

so that takeover doesn't happens.Flip-inn, i will explain about flip-over

and it is triggered when acquiral surpasses the certain ownership.

so here we expect that if elon musk's equity is more that certain level then only the poison pill will be activated.

not gonna happen before that.the advantage is that

old shareholders gets shares at a very low rate.

you must have heard that airtel had right issue where public was offered shares of Airtel at a low rate.

so this is right issue only where shares are given to public at low rate. but normal right is different that the hostile takeover

company is not given this right to buy shares at a discounted rate.

so this is major difference in poison pill strategy.

the advantage is that THE HOSTILE TAKEOVER COMPANY

who is acquiring, its shares/equity gets dilluted.

and gets discouraged to takeover the company.

next is Flip-over strategy.

it applies when the take-over of a company has happened already.

after takeover what happens is shareholders are given right that the hostile takeover company

or basically the acquiring company ,their shares are offered at disounted rates .

so in this situation the hostile takeover company is valued less and owner'equity also gets dilluted.

there are 2 strategies

now will look at what happens in twitter's case

in twitter's case, Flip-inn strategy was applied.

here,Elon Musk offered to the board of directors that a value of each share to the investors would be $54 20 cents.

it is premium and the total value of a company is 43 billion.

according to that,today's valuation would be $45 8 cents.

elon musk is giving more than this, but problem here is hostile takeover all investors and promoters are not ready

what they did is elon musk's stake is 9.1% and board passed the role of poison pill ,

if elon musk's stake would be more than 15% then, poison pill strategy would be automatically activated.

so if elon musk increases his stake in open market by buying shares, then in this situation poison pill would be activated.

what will happen is except elon musk the shares will be available at discounted prices to all the shareholders remaining

in fact at half the prices the exact price is yet not revealed.

as per some sources,what we have figured is price would be half.

next thing is what will happen is elon musk's stake would be dilluted.

so he will not takeover the company it will be very costly to him.because other people are getting at half rates and musk will not get this right,

so this strategy applied, its validity will be 14 april 2027.

so exact calculation of this is strategy will be shown with example.

in this strategy, total outstanding shares for example would be 1000 shares

and the day, elon musk has 15% stake he would have 150 shares im taking with reference to 1000.

you can take 1,00,000-10,00,000 according to 1 lakh it would be 15,000 ,according to 10 lakh it would be 150,000

that day the poison pill strategy would be activated.

lets assume current price to be $50.

in this situation poison pill would be activated when elon musk would take 15% stake.

so right to purchase stock would be given to other shareholders.

lets assume additional 850 is given,its not that existing shareholders would take unlimited shares

limited right is given to them,if you have 1 share then 1 share is taken at discounted rate.

if you have 10 shares then you have right to take 10 discounted shares.

the same way, rate will be decided at $25 to other shareholders,and company will be benefitted

that additional capital would be raised to them, like in $25 per share but additional capital would be raised , now according to this

new shares are 850 old shares are 1000 both would be 1850 and with elon musk it is 150.No more shares are give to him,he doesn't have right.

in this situation, elon musk's equity is dilluted and left at 8.11%

now here,if shares price are decreased so other shareholders or old shares would also be affected.

wouldn't be loss to us?if all shares reduced by $25, so no, new shares are issued at discounted rate , old shares are valued at same.

i will tell you price calculations how it would be profitable

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will understand the exact price calculations

in twitter's case, total value of 1000 outstanding shares

right issue of 850 shares, earlier it was $50per share so companies value was $50,000

now right issue of 850 shares and shareholders would be given shares of exact value that they have.

if 1 shareholder have 1 share so 1 additional share would be given.

so we're issuing more 850 shares.

company wants to issue more, they can

will give them in half of the rate.

so her we see $25 is rate, company collected capital of $21,250

now if we talk about after the poison pill right issue ,new oustanding shares

would be total 1850 and companies'valuation would be 17,250

according to this, if we take rate of per share then it would be $38 51 cents.

now if you say the price is decreased, so old shareholders are affected,so no

they are given right to buy at half price this generates a value to them.

how will we calculate loss or profit or how much value is generating

in this situation no of right shares is divided by the

a simple formula is there,to calculate the value.

850 shares are issues and 1000 shares are already held.

850/1000 *38.51 -25 (everything in dollars) when you solve them you get $11.49

this value is generated in this example, so here poison pill startegy existing shareholders wont be affected

but the hostile takeover company, the elon musk would suffer and stake would be dilluted

so that he can protect his company, one disadvantage is that the

many disadvantages are there, first is stake value became dilluted for acquiral company.

i agree that they get discouraged but at the same time new shareholders, thier stake also gets dilluted

and they have to buy shares, if right issue shares won't be purchased then you've to bear loss.

so right issue shares should be purchased.

next,the institutional investors

or friendly institutional investors apart from hostile

they would be discouraged too.

that twitter's boards doesn't like outside investors to enter.

now there are some ineffective managers in the company.

those doesn't work or does not wants to work,

or ineffective members of board, firing them would be a problem for a big investor.

lets do hostile takeover, change the management and company would be profitable.

same happened in the deal case of tata corus,after acquiring corus

also happened in banks case, management changes then company performed good.

that would be difficult task to do.

so you got what is poison pill strategy,

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we get alot of motivation from this, meet you guys in the next video.

till then bubyeeee.