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Elon Musk has launched a raid on Twitter. Here’s what that means.

Even if his effort is blocked by the board, the social media giant could now be officially in play for another suitor

Inside the deserted Twitter offices during shelter-in-place in San Francisco on May 28, 2020. (Winni Wintermeyer for The Washington Post)

In his new attempt to take over Twitter, Elon Musk is turning to a bare-knuckled tactic more common to the corporate raids of the 1980s: a hostile takeover bid.

Musk’s unsolicited offer of $54.20 per share to take Twitter private — a valuation of $43 billion — is an aggressive strategy that marks a dramatic escalation of his relationship with the social media platform over the past several weeks.

Former Twitter officials speculated that Musk’s offer will force the company into some sort of transaction, with him or someone else. Major tech firms, including Google, Salesforce and Microsoft, have flirted with attempts to acquire Twitter over the past decade.

But Musk has also faced questions about whether he has the funds to take control of Twitter. He insisted in a TED Talk interview on Thursday that he has the money for the deal. He also suggested he had a backup plan if his bid falls through.

Elon Musk launches hostile takeover bid

“I could technically afford it,” he said. But experts said that would most likely require him to borrow against his shares in electric carmaker Tesla and assets in civilian aeronautics firm SpaceX — a risky proposition for both Twitter and his other companies.

Musk’s strategy is known as a “tender offer,” an appeal directly to investors to sell their shares at a premium in an effort to amass a controlling stake in the company. If that fails, he might pursue a proxy fight — joining forces with other shareholders to try to take control of the company.

Twitter’s board has begun a process of deliberating over Musk’s offer, which will probably include hiring outside financial and legal advisers and assigning a few board members to a special committee, corporate governance experts said.

In a tweet Thursday, Musk said it would be “utterly indefensible” not to put the decision to a vote of all company shareholders. “They own the company, not the board of directors,” Musk said in the tweet.

But the authority rests with the board, which is elected by shareholders to carry out strategic decisions, said David Larcker, a professor at Stanford’s Graduate School of Business. Rarely does a board of directors put a major strategic decision to a shareholder vote, he said.

What's going on with Elon Musk and Twitter?

“Inside the boardroom, what they’re trying to figure out is, “Here’s the offer we have on the table, here’s the strategy we have in place, and here’s what the value could be,' ” Larcker said. “They are trying to figure out what’s better for shareholders.”

Part of this decision is a cold calculation of financial value. Musk’s offer represents an 18 percent premium to Wednesday’s closing share price, but it’s still far below where the stock traded in early 2021, when shares topped $76. Shares fell nearly 2 percent in trading Thursday.

Because Jack Dorsey, a Twitter co-founder, is still on the company’s board, he and other company veterans may try to push directors to consider what strategic direction Musk offers for the company, Larcker said. Former Twitter executives and board members spoke out against Musk’s offer Thursday, including Jason Goldman, a former vice president, who tweeted his fear that the Musk offer may usher in an “endgame” for the company that is “almost certainly for the worse.”

Twitter has struggled to meet Wall Street expectations over the past two years, a period in which costs mounted and the company swung from a profit to a loss. Still, the hiring of company insider Parag Agrawal to chief executive last year raised hopes Twitter would focus on improving products and finding new areas of growth.

Even if the board decides the Musk offer is too low, the presence of a serious bid could begin a process that ends in a significant change for the company. More often than not, hostile takeover attempts lead to a sale or some type of fundamental change in a company's direction, said Charles Elson, the founding director of the University of Delaware's Weinberg Center for Corporate Governance.

Elon Musk's Twitter tirade offers clues about board drama.

When any board of directors decides their company is open to a sale, they have a legal duty to seek out the highest possible price, which often means soliciting offers from other strategic bidders. Elson says this is commonly known as a board's “Revlon duties” due to a famous Delaware Supreme Court case in the 1980s. In that case, the court found directors at cosmetics maker Revlon acted out of their legal obligation to shareholders to seek out other bidders when confronted with a hostile takeover offer by corporate raider Ronald Perelman.

Twitter does not have a governance structure which gives special voting power to certain people, unlike several of the largest tech companies, including Facebook and Alphabet, where founders control shares with added power over the board. While that ownership model has long been criticized for putting too much control into a handful of insiders, it also acts makes companies harder for outside bidders to acquire, Larcker said. The lack of this structure could leave Twitter vulnerable.

When a takeover attempt is rebuffed, the bidder would typically then begin mounting a months-long campaign to unseat directors on the company’s board. This process, called a “proxy battle,” usually means crafting a persuasive plan to improve long-term value and selling that plan to shareholders, who each get to vote on the makeup of the board once a year. A proxy battle is successful when shareholders vote in a new slate of directors, a majority of whom approve of the takeover offer.

Elon Musk won't join Twitter's board after all.

Experts question whether Musk has the time or focus to go down the path of a long, drawn-out proxy battle. Musk runs two other companies and has a fiduciary obligation to the shareholders of those companies, Larcker said.

“His plate is already pretty full with Tesla and SpaceX.” he said “Does he need another company to run?”

Twitter executives are reportedly considering a shareholder rights plan, often called a “poison pill,” to ward off Musk’s offer, according to the Wall Street Journal. The maneuver common to hostile takeover situations typically allows investors other than prospective purchaser to buy additional shares at a discount, thus diluting a purchaser’s holdings and making an acquisition attempt prohibitively expensive.

Papa John’s employed a poison pill in 2018 to defeat a hostile takeover attempt by ousted founder John Schnatter. Newspaper publisher Lee Enterprises instituted a shareholder rights plan in 2021 to fend off an acquisition bid from Alden Capital.

Potential purchasers sometimes respond with a proxy battle, attempting to recruit additional investors to help wrest control of voting shares. Belgian beverage giant InBev, for example, used the strategy in 2008 when it made a $46 billion for St. Louis-based Anheuser-Busch, the brewer behind Budweiser.

Anheuser-Busch dismissed the offer as too low and refused to discuss it. InBev responded by pursuing a proxy fight, filing a motion asking shareholders to fire the board and install a more friendly one that would approve the deal. The lines split family ties, pitting members of the Anheuser-Busch family against one another in a battle for control over the company’s legacy. Investors were ultimately won over by a sweeter offer from InBev valuing the company at $52 billion.

Musk said he is not buying Twitter to make money and does not intend to become the company’s sole owner. Instead, he said he wants to bring other investors into the company when he takes it private. “I will try to bring along as many shareholders as we are allowed to,” Musk said.

Twitter has thousands of shareholders, but according to the company's most recent annual report, only 802 of them are considered “holders of record,” a term for the unique institutions that hold shares in a company. According to securities laws, a public company that is becoming a private company can only have a maximum of 300 holders of record, according to James Angel, a professor of finance at Georgetown University.

While highly unusual, Musk could arrange the deal so that he swaps out the Twitter shares of some existing investors with shares in a newly private company, Angel said.

Musk could face a difficult task recruiting investors to his cause. Fred Wilson, a former Twitter board member and New York-based venture capitalist, tweeted Thursday that the platform should be decentralized and was “too important” to be controlled by a single owner.

Saudi Prince Alwaleed bin Talal, head of the crown’s holding company and one of Twitter’s largest institutional investors, also rejected Musk’s offer, saying it undervalued the company and its growth prospects.

Reed Albergotti contributed to this report.

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