NEW YORK, NEW YORK - MAY 02: Elon Musk at The 2022 Met Gala Celebrating "In America: An Anthology of ... [+] Fashion" at The Metropolitan Museum of Art on May 02, 2022 in New York City. Credit: RW/MediaPunch /IPXRW/MediaPunch/IPx
Yes, Elon Musk is still trying to buy Twitter TWTR .
But, first, some exciting personal news that could fit well within a 280-character tweet. I was recently elected to serve as the chair of the academic subcommittee for the ABA’s Venture Capital and Private Equity committee. I look forward to working with attorneys, investors, entrepreneurs, law students and everyone interested in venture capital and private equity.
Back to the Twitter saga. Musk took a massive step forward on April 24 by winning board approval for his proposed all cash takeover at $54.20 per share.
Will he be able to pull it off? What would a Musk-owned Twitter look like? The answers to these questions are very much still up in the air.
On April 4, Musk announced in a filing with the SEC that he had taken a 9.2% stake in Twitter beginning on March 14. Twitter shares soared as a result of the news, but not all of Twitter’s shareholders were pleased.
By April 14, a lawsuit filed in federal court sought compensation for losses resulting from Musk’s untimely disclosure of his stake.
Musk was required by law to disclose his position in Twitter within 10 days of the purchase. Musk waited an extra 11 days which allowed him to purchase even more shares.
After turning down a seat on Twitter’s board on April 10, his next move was with an offer delivered to Twitter on the same day the lawsuit was filed. Musk offered to purchase the company for $43 billion and take the company private.
Within 48 hours, the board voted to adopt a limited duration shareholder rights plan, more commonly known as a “poison pill”.
But, in the end, there was neither a dramatic fight nor a high-stakes game of chicken between the board and Musk. After just a week of negotiations, Twitter’s board unanimously accepted his offer. They even accepted at the original price of $54.20.
Like me, many corporate governance critics are wondering: Why would they do that? Matt Levine reported this week that this was Twitter’s board simply giving up. Maybe they believed it was in the best interest of the shareholders. That’s certainly a strange perspective.
Jeff Gordon, a Columbia Law professor, opined that “the board’s conduct was shockingly near-sighted, and the predictable adverse consequences will be the directors’ personal responsibility.”
Twitter CEO Parag Agrawal told his employees after the deal announcement that the board acted in the interest of the shareholders. But, notably absent were comments about Twitter’s best interest as a company, other stakeholders and free speech.
Remember, Twitter is a Delaware corporation, and under current Delaware law, the board didn’t have to accept the offer.
Yes, the board needs to consider the shareholders in a takeover scenario. Yes, the board can choose to find the highest price possible. But, under Delaware law, the board can consider a variety of other factors.
For my corporate law followers, as you know, under Paramount v. Time , the board can consider the “impacts on ‘constituencies’ other than shareholders.” Therefore, shareholder value is by no means the only consideration for the board. The Twitter board could have taken other factors into account as grounds for rejecting Musk’s offer.
Here’s what to expect
Shareholders get to step in and have their say. Twitter board members have to submit the offer for shareholder approval. Yes, some of these shareholders are currently suing him for what they perceive as him cheating them out of money. Twitter, just a year ago, was trading at a significantly higher share price.
Dissenting Twitter shareholders would perhaps be wise to explore ways to slow things down, such as sue to get an independent valuation or attempt to block the merger entirely. As the saying goes “time is money.”
Perhaps, there are also some displeased Tesla TSLA shareholders. Especially, when you consider that Twitter and Tesla are now tied to one another.
Let’s not forget Twitter stakeholders. Twitter employees are expressing concerns. Musk is making lots of noise on layoffs, changing executive compensation and has a reputation for being a difficult boss. A mass exodus seems imminent.
Twitter users are expressing concerns and there were already significant numbers of users leaving. This would likely increase if Musk begins charging for commercial use of the platform.
Twitter advertisers—Twitter’s primary source of revenue—are also concerned and Twitter is preparing a massive blitz to try to retain them.
The understatement of the year: Twitter’s three critical groups of stakeholders— employees, users and primary revenue source—are all skeptical of Musk’s takeover. Twitter says it’s acting in the best interest of its shareholders—but it isn’t exactly clear which ones. Probably not those currently suing Musk in federal court.
In the meanwhile, Musk got an injunction of fresh money. According to the Wall Street Journal, Musk assembled a group of 19 investors including a Saudi prince, Larry Ellison and Binance, a bitcoin exchange, to back his bid. More money is good for musk, not sure if it will help him close this deal or not.
Musk is a maverick; there’s no doubt about it. He clearly believes in his strategy. Perhaps, the strategy is to drive away all of the critical parties that make up what we know is Twitter.
Whether it will work is the topic of a comment.
Is he going to be successful? I’m sure we’ll all find out via a Tweet in the near future.
Thank you to my research fellow, John Livingstone. If you have any comments, suggestions or feedback, please send them to John Livingstone firstname.lastname@example.org or to me email@example.com .
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