Elon Musk Now Able to Straight Up Buy Twitter, Pursue Hostile Takeover After Refusing Board Membership
Elon Musk, CEO of Space X and Tesla, bought a huge share of Twitter but has turned down a seat on the social media giant’s board.
This has everyone asking, is Musk positioning himself to take over Twitter?
Elon Musk bought 9.2 percent of Twitter, which makes him the largest shareholder in the social media company, CNN reported.
Many then assumed that his next move would be to join the Twitter board. But he has opted out of taking a seat, ABC News reported.
“Elon’s appointment to the board was to become officially effective on April 9, but Elon shared that same morning that he would not be joining the board. I believe this is for the best,” Twitter CEO Parag Agrawal announced.
Many assumed Musk would be joining the board since he tweeted over the weekend several suggestions for changes to Twitter, such as making it ad free, even though 90 percent of Twitter’s 2021 revenue came from advertisement, ABC News reported.
Agrawal said that Twitter’s board understood the risks of having Musk as a member. But the board “believed having Elon as a fiduciary of the company, where he, like all board members, has to act in the best interests of the company and all our shareholders, was the best path forward,” Agrawal wrote.
Having Musk on the board would have been in the board’s best interest because, though he is already the largest shareholder, the board was offering him a seat on the condition that he not own more than 14.9 percent of the company’s outstanding stock, ABC News reported.
Basically, Twitter’s board was trying to keep Musk at bay and keep him from taking over by giving him a seat.
Twitter did initially benefit from Musk’s stake. Shares of the company jumped about 30 percent when Musk’s 9.2 percent stake in the company was made public.
But upon the announcement that he will not join the board, shares fell by about 2 percent as soon as the market opened on April 11.
Musk’s decision does leave the door open for him to pursue a hostile takeover, if he wishes.
“Without that limit, Musk could now — in theory — pursue a hostile takeover by buying the company outright. That’s a move his extraordinary wealth comfortably enables him to do,” Fortune reported.
Analysts are saying Musk has positioned himself perfectly for a takeover, and they are conjecturing this is exactly what he plans.
“This now goes from a Cinderella story with Musk joining the Twitter board to likely a Game of Thrones battle between Musk and Twitter,” said Dan Ives, a Wedbush analyst who covers Tesla, Forbes reported.
Musk has been harsh in his critiscism of Twitter and made it clear that he wants changes made.
“Given that Twitter serves as the de facto public town square, failing to adhere to free speech principles fundamentally undermines democracy,” he wrote on Twitter, CNBC News reported. “What should be done?”
Before he bought his shares, he even suggested just starting his own platform.
Am giving serious thought to this
— Elon Musk (@elonmusk) March 27, 2022
When Musk makes suggestions and criticisms like this, it’s not just random or for fun. He has a huge audience of 81 million followers, and Twitter is well aware that he is one of the most watched people, Forbes reported.
Others have pointed out that Twitter put itself in this particularly vulnerable spot due to its structure of who has voting control in the company and who does not.
“Twitter is more vulnerable than some of its internet peers to outside pressure because its founders don’t have special voting control,” Justin Post, director of equity research at Bank of America Securities, wrote after Musk revealed his stake in the platform, Fortune reported.
That means that, unlike other giant tech companies, Twitter does not have dual-share classes, which would leave voting rights for the company’s founder and thus protect it against hostile investors, like Musk.
Twitter does have the option, however, of a bit of a self-suicide plan. The company could sell its stock at a discount, which would dilute an aggressive shareholder’s stake in the company, which is another way of warding off hostile investors, like Musk might be, Forbes reported.
While this move could ward off someone like Musk, it would cost Twitter money and also make it vulnerable to corporate raiders, who could see this as an opportunity to buy up cheap stock, then improve the business, turn around and sell out at a profit.
This could equally damage Twitter, and particularly the cultural importance that it has been trying to build, Forbes conjectured.
At this point though, many are assuming that Musk will pursue a hostile takeover.
But no matter what happens, this whole situation has put a spotlight on Twitter and shown its vulnerabilities.
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