Musk’s offer price of $54.2/share represents a 38% premium to Twitter’s April 1 close
Musk’s offer price of $54.2/share represents a 38% premium to Twitter’s April 1 close
In 10 days, Tesla CEO Elon Musk has gone from popular Twitter contributor and critic to the company’s largest single shareholder to would-be owner of the social platform – a whirlwind of activity threatening the service given the billionaire’s sometimes quirky self could change dramatically. Identification as an absolutist of free speech.
Twitter revealed in a securities filing on Thursday that Mr. Musk has offered to buy the company outright for more than $43 billion and said the social media platform “needs to be turned into a private company” in order to gain trust to build its users.
“I believe freedom of speech is a societal imperative for a functioning democracy,” Mr Musk said in the filing. “It is now clear to me that the company will not thrive in its current form nor serve this societal imperative.”
Later in the day, during a stage interview at the TED 2022 conference, he went even further: “Having a public platform that is maximally trustworthy and inclusive is extremely important for the future of civilization.”
Since it burst onto the scene in 2006, Twitter has been the home of thriving social and political commentary, shared messages, scandal gossip, cat memes and clothing color discussions. But it has also created a platform for viral misinformation and lies, bullying and hate speech and gangs of trolls who can shout down posters they disagree with, unleashing tidal waves of vile images, threats and similar acts of online aggression.
Twitter has made significant efforts to curb the latter and preserve the former — though not always in a way that satisfies most users. Like other platforms, it has put restrictions on tweets that threaten violence, incite hatred, bully others, and spread misinformation. Such rules fueled Twitter’s decision to ban former President Donald Trump after the 2021 Capitol riot.
Twitter has also become a destination for brands and advertisers, many of whom prefer stricter content restrictions, and a megaphone for high-profile figures like Mr. Trump and Mr. Musk, who use it to rally supporters and promote business ventures.
Mr Musk, who called Twitter the “de facto marketplace,” on Thursday touched on some specific potential changes — like favoring temporary bans over permanent ones — but has mostly described his goal in broad and abstract terms.
He said he wanted to open the “black box” of artificial intelligence technology that powers Twitter’s feed so people would have more transparency as to why some tweets might go viral and others might disappear. “I wouldn’t be there personally to edit tweets,” he said, “but you would know if anything was done to promote, demote, or otherwise influence a tweet.”
The billionaire has been a vocal critic of Twitter, largely because of his stated belief that it fails to uphold the principles of free speech. The social media platform has angered supporters of Mr Trump and other right-wing political figures whose accounts have been suspended for violating content standards on violence, hate or harmful misinformation. Mr Musk has described himself as a “free speech absolutist” but has also been known to block other Twitter users who question him or disagree with him.
While Twitter’s user base is much smaller than that of competitors like Facebook and TikTok, the service is popular with celebrities, world leaders, journalists and intellectuals. Mr. Musk himself has more than 81 million followers and rivals pop stars like Lady Gaga.
Elon Musk’s “final” offer
Twitter shares closed at $45.08, down nearly 2%, well below Mr. Musk’s bid of $54.20 per share. That’s generally a sign that some investors are doubting the deal will go through. The stock remains below its 52-week high of around $73.
Mr. Musk called this price his final offer, though he didn’t provide details on funding. The offer is non-binding and subject to financing and other conditions.
Twitter said it will decide whether accepting the offer is in the best interests of shareholders. However, it’s unclear how Twitter’s board of directors will react after evaluating the offer. It will likely negotiate and seek a higher price per share, or it may seek provisions to ensure the board remains independent from Mr. Musk, said John Coffee, a professor at Columbia University Law School and head of the Corporate Governance Center.
“Poison Pill” Provisions
The board could issue “poison pill” regulations to offer more shares and dilute the value of Mr. Musk’s holdings if Mr. Musk’s stake grows to 10% or 15%, Mr. Coffee said. Even then, Mr. Musk could still take over the company in a proxy fight by voting out the current directors.
At the TED conference, Mr. Musk said he had the money. “I could technically afford it,” he said, laughing.
Should Mr. Musk go through with his takeover bid, he could likely raise the roughly $43 billion he needs, possibly through billions in loans with his shares in Tesla and SpaceX as collateral.
Most of Mr Musk’s wealth, which Forbes estimates at nearly $265 billion, is tied up in shares of Tesla. The company allows senior executives to use shares as collateral for loans, but limits borrowing to 25% of the value of the pledged shares.
According to data provider FactSet, Mr Musk owns 172.6 million shares worth $176.47 billion. Just over 51% of its stake is already pledged as collateral, according to a proxy statement from Tesla. That means Mr. Musk could use the remaining stake to borrow about $21.5 billion. He could also borrow his stake in privately held SpaceX.
Twitter stocks are bought in daily batches
Mr. Musk disclosed in regulatory filings over the past few weeks that he had been buying Twitter stock on an almost daily basis since Jan. 31, ending up with about a 9% stake. Only the Vanguard Group controls more Twitter shares. A lawsuit filed Tuesday in New York federal court alleged that Mr Musk illegally delayed disclosing his stake in the social media company so he could buy more shares at lower prices.
The U.S. Securities and Exchange Commission could penalize Mr Musk for hurting other investors by taking too long to disclose his purchase of Twitter stock, but it’s unlikely to do anything to encourage a takeover stop, said Chester Spatt, a former chief economist at the SEC.
“That’s going to happen pretty quickly,” said Mr. Spatt, now a finance professor at Carnegie Mellon University.
Jacob Frenkel, a former SEC enforcement attorney now with the Washington law firm Dickinson Wright, said it is difficult to prove an investor’s intent in disclosure cases. “The mere fact of the disclosure-related violation does not mean there was fraud,” Mr. Frenkel said.
However, there is “much room for investigation” as to whether anyone with knowledge of Musk’s stock purchases traded the stock prior to Musk’s publication, Mr Frenkel said.
“Distraction Ahead”
After Mr. Musk announced his stake, Twitter was quick to offer him a seat on the board on the condition that he own no more than 14.9% of the company’s outstanding shares. But the company said five days later that he had declined. The decision coincided with a flurry of now-deleted and not always serious tweets from Mr. Musk, in which he proposed big changes for the company, such as deleting ads – its main source of income – and converting its San Francisco headquarters into one homeless shelter.
The turnaround prompted CEO Parag Agrawal to warn employees earlier this week that “there will be distractions” and “turn off the noise and focus on work”.
Twitter hasn’t fared as well as its social media peers, losing money over the past year. The company reported a net loss of $221 million for 2021, largely related to the settlement of a lawsuit filed by shareholders who said the company misled investors about how rapidly its user base was growing and how many users were interacting with its platform. Its co-founder Jack Dorsey resigned as CEO at the end of November and was replaced by Mr Agrawal.
“I’m not saying I have all the answers here, but I think we just want to be very cautious about deleting things and just be very careful about permanent bans,” Mr. Musk said. “It won’t be perfect,” he said, but there should be a perception and reality that the speech is “as free as reasonably possible.”
