When a private company, like Twitter, accepts money from investors (aka shareholders), it opens itself up to risk, to the unexpected. Elon Musk’s recent investment in Twitter sounded alarm bells, both internally and externally. The New York Times called it a “treacherous situation”, describing Musk as “an activist investor unlike any other … (who) is known for being unpredictable and outspoken”.
“There is no such thing as a free lunch.” (Nobel prize winning economist, Milton Friedman)
What is the impending risk for Twitter? It continues to unfurl.
As part owners of any publicly traded company, shareholders, including currently 9.2% Twitter owner Elon Musk, have important voting powers:
- Electing directors
- Deciding upon proposals for fundamental changes that might affect the Company (such as if it should accept a buy-out offer)
Shareholders also have the right to examine basic documents, such as:
- Company by-laws
- Minutes of board meetings (the juicy stuff)
The Securities and Exchange Act of 1934 also requires that publicly traded companies periodically disclose financial statements. The stuff they’re not allowed to fudge or they’re in very big trouble.
Additionally, shareholders can sue for wrongful corporate acts which negatively affect investment returns.
All of this is meant to protect shareholders from poor management. Sounds reasonable, doesn’t it? After all, it’s the investor’s hard-earned money that’s at stake – whether it comes from the hard work as CEO of Tesla, Vanguard fund managers, Saudi Arabian princes or any other ordinary human.
Whenever Elon Musk is present, we know something’s up. And that was indeed the case when he handed over a bunch of dineros to buy Twitter shares, worth about $2.9 billion just a few weeks ago. A seat on the Board with a 2 year term was offered, then it quickly went “poof”, for reasons which point to obvious conflict between Twitter executives and Musk.
From a philosophical point of view, one likely reason why Elon Musk did not join the Twitter Board is that it liberated him from corporate governance rules that would have required him to act very specifically, in a very controlled manner, in the best interests of the Company and its shareholders. In other words, it would have curtailed his freedom, his true voice.
“Twitter is a war zone.” (Elon Musk)
Twitter’s second most well-known activist shareholder has been the investment firm Elliott Management, which accumulated a 4% stake in the business before demanding changes, including sacking CEO Jack Dorsey (he stepped down in November) and insisting on more financial growth. What has Twitter learned from this experience? Likely not enough to deal with the maverick in town, Mr. Musk.
“Is this Elon having fun? Is this Elon trying to effect change? Is this Elon trying to drive the stock higher?” (Rich Greenfield, LightShed Partners quoted by the New York Times)
There is a lesson to be learned here for Twitter and other companies that are publicly traded. It did not structure the Company’s shares in a way that gave the Company adequate control, unlike Google and Facebook who received better advice and protection. As a result, Twitter is vulnerable. And right now, it ain’t pretty.
Last week we were all wondering: will it blow over? I doubted it. Some feared that a Game of Thrones-like battle was on the horizon and, indeed, most of us were struck with awe when Musk made a cash offer to buy Twitter lock stock and barrel.
So far, the winner appears to be Elon Musk. After the shock wave settled, he had a free voice as an investor, rather than a director, and he was no longer bound to an agreement to stop buying more Twitter stock or to refrain from taking over the Company.
Mr. Musk remains able to tweet whatever he wants, whenever he wants. To a man who has been described as a “chaos muppet”, that is surely the definition of power.
One hiccup appeared early on, though. Apparently, Elon did not disclose his stake in Twitter when it surpassed 5%, missing the March 24th regulatory notification deadline by 10 days. The Securities and Exchange Commission (SEC), with whom Musk already has a highly contentious relationship, is all over that, as will be a flurry of disgruntled investors who are suing him for unfairly profiting from a resulting lower share price.
It is not surprising that Elon Musk decided to make a large investment in Twitter. After all, Elon has described Twitter as a modern day “public square” and uses it to constantly tweet to his (gulp) 81 million followers. Currently valued at a paltry $37 billion, Musk could easily snap up Twitter with his net worth of $274 billion and, by going private, he would be uncensored. Musk recently took his boxing gloves off, sparring with Saudi Arabian Prince Alwaleed bin Talal who tweeted his opposition to the offer. Musk’s rebuttal was on point: “What are the Kingdom’s views on journalistic freedom of speech?”.
“This is not a way to make money … I don’t care about the economics at all. The truth matters to me, a lot. Sort of pathologically, it matters to me.” (Elon Musk)
Do you remember when it was suggested that Mexico should buy Twitter, as it was cheaper than suffering the economic consequences of Trump’s relentless anti-Mexico tweeting?
“Instead of spending its precious reserves to defend the peso, Mexico should just buy Twitter – at a cost of about $12 billion (at the time) – and immediately shut it down.” (Bloomberg)
Crazy thoughts and Twitter go hand in hand. It is the beast Twitter has built. And that beast now has to reckon whether or not it should take $43 billion in cash from the hands of a man Twitter CEO Parag Agrawal recently described as a “distraction”. If Twitter doesn’t take the money, Musk said he will reconsider his position as a shareholder. We all wondered what that meant … but with the impulsive Mr. Musk lurking about, we didn’t have to wait long to know. He’s already showing his hand.
Last week Musk revealed that an informal poll of his social media followers showed that 83.5% of them agreed that taking Twitter private at $54.20 should be up to shareholders, not Twitter’s Board of Directors. Yesterday, Elon hinted that he may make a public request to buy Twitter stock directly from shareholders, thwarting the Board’s attempt to stop him from acquiring the Company. Former Securities and Exchange Commission chairman Harvey Pitt was quoted as saying that he would give the Twitter Board an F for their handling of the situation.
“I invested in Twitter as I believe in its potential to be the platform for free speech around the globe, and I believe free speech is a societal imperative for a functioning democracy.” (Elon Musk)
We all know that billionaires love to own media platforms. Even though Elon says that “it’s not from the standpoint of let me figure out how to monopolize or maximize my ownership”, Mr. Musk’s acquisition of Twitter could provide him with one of the world’s largest megaphones.
Free speech is important, as the video clip below demonstrates.
Now take what you’ve learned and play today’s Twittivism Quiz of the Day:
1. Download Quizefy app.
2. 250 free gems will be instantly deposited in your name
3. Start playing immediately for free
4. Have fun and Strut Your Smart!