Elon Musk doesn’t need a board seat to replace Twitter

Accepting a board seat would require Musk to act in the company’s best financial interests and would likely require him to suggest private rather than Twitter, the latter of which is a nod to one of the platform’s most prolific. Seemed like a big demand. (and controversial) users. Part of his agreement with Twitter to join the board, Musk’s investment in the company – which currently accounts for 9.1% of its shares – will also be capped at 14.9%, potentially weighing on his ability to influence the company. imposing some limits.

In his tweet on Sunday night announcing Musk’s reversal, Agarwal said the company’s board believed “Elon is treated as a subsidiary of the company, where he, along with all board members As such, acting in the best interest of the Company and all of our shareholders, was the best way forward.”

Now, all bets are off.

Elon Musk will not join Twitter's board

It’s still unclear what Musk’s final game will be. He hasn’t tweeted, or otherwise commented on his plans since leaving the board seat. One option might be to sell its stake — laughing all the way to the bank after managing to troll the leadership and followers of its favorite platform while still making a profit of about $700 million from its investment as of Wednesday. But that’s a modest payday for a man of nearly $300 billion, and many analysts agree it doesn’t sound like Musk.

“He’s unlikely the type of person who would now just sell his stake and walk away,” Angelo Zino, senior equity analyst at CFRA Research, said in a research note on Monday.

Alternatively, Musk’s decision not to join the board would have opened the door to acquiring a larger share of the company in an effort to influence his actions, or even in a bid to acquire it. Is. In doing so, their relationship with Twitter and its leaders could change from a seemingly friendly back-end to something more hostile than invitations on stage and across the board.

Twitter declined to comment for this story. Musk did not immediately respond to a request for comment.

Here’s what could happen next.

build your stake

Even though he won’t be on Twitter’s board, Musk will still have a meaningful impact on the company as its largest — and potentially largest — shareholder. He has already used that position to advocate for teen suggestions such as lifting the ban on speech from the platform and asking Twitter to make its algorithm open source, as well as removing the “w” from the company name. Agarwal acknowledged Musk’s influence in his Sunday statement: “Elon is our largest shareholder and we will be open to his input.”

But Musk may continue to buy more shares in the company to increase his leverage. And if he does, the company’s followers will know about it. Now that Musk has filed with the Securities and Exchange Commission as an “active” investor, whenever there is a material change (usually up or down 1%) in his ownership stake, he has to submit his disclosures to the agency. The amendment has to be filed, according to Ken Henderson, partner at law firm Brian Cave Leighton and Passner.

“As much as he’s the boss… obviously, you have to listen to him,” Henderson said. “If that goes up to 12%, 15%, 20%, that’s pretty enough.”

For example, with a larger stake in the company, Musk may be more swayed to appoint other board members who align with his goals, allowing him to continue to speak openly about the company publicly. Allows to keep while someone advances their agenda from the inside. Musk may also partner with other activist-oriented investors — Twitter has previously been a target of activists — to use their combined shareholder power to drive changes to the company’s strategy, management or board.

“He’s definitely calling for some changes to the way the company is run and that can be done through the classic activist toolbox, which is to come and do basically what he did before he changed his mind.” Was: get some board seats and push from the inside to make changes to management and so forth,” Henderson said. “There are a lot of things he can do to buy the whole company.”

buy twitter

Musk has so far not followed a specific playbook for active investors, which would typically involve taking issue with a limited number of specific strategies or practices in a company, and formulating a plan to correct them, which would lead to a stock market crash. The price will increase. And it just can’t start.

“The term ‘activist investor’ is not appropriate for what Elon Musk is doing,” said Michael Usem, professor of management at the Wharton School of the University of Pennsylvania. “In this circumstance, to come up with Twitter, a ‘worker owner’ might be a better phrase, or ‘the worker will be the owner.

One activist owner, Usim said, may not only be seeking to challenge certain policies on the board or in a company, but “may be challenging such fundamentals as [they] Maybe he’s ready to become a full owner” if the company doesn’t follow through on his suggestions.

If he decides to try to buy Twitter outright, Musk could make a strong enough offer that the board may have a responsibility to support it, Usem said. He could have bypassed the board by taking a more hostile move called a “tender offer” to buy shares directly from shareholders in a possible bid to acquire a majority stake in the company and build from there.

Elon Musk is a wild card that could make life difficult for Twitter's new CEO

Buying Twitter won’t be cheap. Musk will have to offer a premium to Twitter’s share price, which has stood at about 16% since his ownership stake was disclosed. Still, even if he offered a price that would exceed the company’s more than $36 billion market cap, it would be a relatively low price to pay for the world’s richest man.

Persuading other investors and banks to partner with him in an activist campaign or buyout could be difficult for Musk, whose reputation was tarnished in 2018 by his misleading pledge on Twitter to take Tesla private, whose This resulted in a lawsuit and settlement with the SEC. He has also openly feuded with banks such as JPMorgan, which sued Musk over those 2018 tweets alleging breach of contract. (Tesla filed a countersuit earlier this year.) Still, the world’s richest man will probably find people willing to work with him.

“When you’re in hot water with regulators, there’s usually a no-touch sign in your front yard,” Usem said. “That said, I think under the circumstances, we’re talking a large sum of money at stake here. … And even if you’re worried about business this time, you want the business of Elon Musk in the future.” ”

fighting back

The structure of Twitter’s stock makes it more vulnerable to a hostile actor buying a controlling stake or attempting an outright takeover.

Some of Twitter’s technical partners, including Facebook-parent meta ,American Plan, And Google ,Google Google,-Parent Alphabet has several classes of shares: one for the most general investors, and another for the founders who have more voting power. That way, for example, Facebook founder Mark Zuckerberg can control votes on Meta, even if the company’s other shareholders vote the other way around. In contrast, Twitter has only one class of shares with everyone having equal voting power. If Musk acquires a majority of the shares, he will be able to determine the direction of shareholder votes on major corporate issues.

Still, if Twitter’s board and management team choose not to give Musk the shots — assuming that’s his goal — they have few options. The first would be to make the rounds of Twitter to explain to large, institutional investors why sticking to the company’s current strategy would be best for shareholder value in the long run, in an effort to convince them that they are likely to be potential board candidates or Do not support the other proposed. Change by Musk, Henderson said.

The board may also adopt an anti-corporate takeover strategy known as the “poison pill”, which essentially reserves the right to buy more shares at a steep discount to all shareholders other than a hostile party, Effectively reduces the stake of the hostile party. company. Such a move might not necessarily prevent Musk from acquiring more shares or attempting an acquisition, but it could slow him down and make the process more expensive.

Typically, boards do not implement such a provision until a party has acquired more than a 15% stake, although Twitter’s board may already be preparing one, according to Henderson. “It’s called a poison pill because the hostile buyer will have to swallow the pill when moving, so the cost becomes prohibitive,” Henderson said.

Then again, the bar of being cost prohibitive may be high for a man worth hundreds of billions of dollars who loves Twitter a little more.

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