Accepting a seat on the board would have required Musk to act in the best financial interests of the company and likely required him to make suggestions privately rather than on Twitter, the latter seeming to be a big ask for one. of the platform’s most prolific platforms. users (and controversial). As part of his deal with Twitter to join the board, Musk’s investment in the company – which currently stands at 9.1% of its shares – would also have been capped at 14.9%, which which could limit its ability to influence society.
In his Sunday night tweet announcing Musk’s overthrow, Agrawal said the company’s board “felt that having Elon as a trustee of the company where he, like all board members, must act in the best interest of the company and all of our shareholders, was the best way forward.”
Now all bets are off.
It’s still unclear what Musk’s end game is. He has not tweeted or commented on his plans since turning down the board seat. One option could be to sell his stake – laughing all the way to the bank after successfully trolling executives and followers of his favorite platform while making a profit of around $700 million on his investment, as of Wednesday . But that’s a minor salary for a man worth almost $300 billion, and many analysts think that doesn’t sound like Musk.
“He’s unlikely to be the type of individual who will now just sell his stake and walk away,” CFRA Research senior equity analyst Angelo Zino said in a research note Monday.
Alternatively, Musk’s decision not to join the board opens the door for him to acquire a larger share of the company in an effort to influence its actions, or even pursue a bid to acquire it. In doing so, his relationship with Twitter and its executives could turn from seemingly friendly back and forth on the platform and boardroom invites to something more hostile.
Twitter declined to comment for this story. Musk did not immediately respond to a request for comment.
Here’s what could happen next.
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Although he won’t be joining Twitter’s board, Musk will still have significant influence over the company as its biggest — and potentially loudest — shareholder. He’s previously used that stance to advocate for the platform’s removal of speech restrictions and for Twitter to make its algorithm open source, as well as more juvenile suggestions, like removing the “w” from the name. of the company. Agrawal acknowledged Musk’s influence in his statement on Sunday: “Elon is our largest shareholder and we will remain open to his input.”
But Musk could continue to buy more shares on a regular basis to increase his influence on the company. And if he does, the company’s followers will know about it. Now that Musk has filed with the Securities and Exchange Commission as an “active” investor, he will need to file changes to his disclosure to the agency whenever there is a material change (normally 1% toward up or down) in its stake, according to Ken Henderson, a partner at law firm Bryan Cave Leighton and Paisner.
“The more he owns…obviously you have to listen to him,” Henderson said. “If he’s gone 12%, 15%, 20%, that’s pretty substantial.”
With a larger stake in the company, Musk could, for example, have more leverage to appoint other board members who align with his goals, allowing him to continue to speak openly about the company. company in public while having someone pushing their agenda inside. Musk could also seek to team up with other activist-focused investors — Twitter has been targeted by activists before — to use their common shareholder power to push for changes in strategy, direction, or governance. company board of directors.
“He certainly seems to be asking for changes to the way the business operates and that can be done through sort of a classic activist toolkit, which is to come in and basically do what he did before he changed his mind. : get a few seats on the board and push from within to make changes in management and so on,” Henderson said. “There’s a lot he can do other than buy the whole business.”
So far, Musk hasn’t followed the typical playbook for activist investors, which would normally involve challenging a limited number of specific strategies or practices in a company and coming up with a plan for how fixing them would boost the price. of action. And he can’t start now.
“The term ‘activist investor,’ I think, is the wrong term for what Elon Musk is doing,” said Michael Useem, professor of management at the Wharton School at the University of Pennsylvania. “In these circumstances, entering Twitter, an ‘activist owner’ might be the better phrase, or a ‘potential activist owner.’
An activist owner, Useem said, might seek to not only challenge who is on a company’s board or certain policies, but would “challenge fundamental principles such as [they] would perhaps agree to become the full owner” if the company did not adopt his suggestions.
If he decided to try and buy Twitter outright, Musk could make a strong enough offer that the board would have a fiduciary responsibility to back him up, Useem said. He could also circumvent the board of directors by making a more hostile approach called a “tender offer” to buy shares en masse directly from shareholders, as part of a possible offer to acquire a majority stake in the company. business and grow from there.
Buying Twitter won’t be cheap. Musk is expected to offer a premium on Twitter’s share price, which has risen about 16% since his stake was disclosed. Yet even if he offered a price well above the company’s more than $36 billion market capitalization, it would be a relatively small price for the world’s richest man to pay.
“When you’re in hot water with regulators, there’s usually a ‘do not touch’ sign in your front yard,” Useem said. “Having said that, I think under the circumstances we’re talking about a huge amount of money at stake here. … And even if you’re worried about the business this time, you’re going to want Elon Musk’s business in the future.”
Twitter’s share structure makes it more vulnerable to a hostile actor buying a majority stake or attempting an outright acquisition.
Still, if Twitter’s board and management team prefer not to let Musk make the decisions — assuming that’s his goal — they have a few options. The first would be to go around to Twitter’s big institutional investors to explain why sticking with the company’s current strategy will be the best bet for long-term shareholder value, with the goal of convincing them not to back potential candidates for the board of directors or other proposed candidates. changes by Musk, Henderson said.
The board could also adopt what is called a “poison pill”, an anti-corporate takeover tactic that essentially reserves the right for all shareholders other than a hostile party to buy more shares with a steep discount, thereby diluting the hostile party’s stake in the company. Such a move wouldn’t necessarily prevent Musk from acquiring more shares or attempting a takeover, but it could slow him down and make the process more expensive.
Boards typically do not adopt such a provision until a party has acquired more than a 15% stake, although Twitter’s board may prepare one in advance. , according to Henderson. “It’s called a poison pill because the hostile buyer would have to swallow the pill if they go ahead, so the cost becomes prohibitive,” Henderson said.
Then again, the cost-prohibitive bar may be higher for a man worth hundreds of billions of dollars who seems to love Twitter a little too much.