A few days were chaotic for Elon Musk.
After announcing that he had quietly become the largest shareholder on Twitter, this week Musk launched a hostile takeover bid, offering to buy the social network for $ 43 billion. The Twitter board responded on Friday, announcing it would implement a plan that could halt or prevent Musk’s experience.
But experts say the next development is difficult to predict, said Alma Angotti, an SEC compliance expert at Guidehouse Consulting in Washington. Among the many possible ways forward, Musk could withdraw the offer, leave his existing shares on Twitter, or continue his quest to take over the company.
“Before going through a lot of time, trouble and expense to respond to Musk, Twitter is probably trying to decide how serious he is,” she said. “If they just say no to his proposal, what will he do?”
What’s next? Here are some of the biggest questions left about Musk’s surprising acquisition.
How did we get here?
On April 4, Musk revealed in a filing with the US Securities and Exchange Commission (SEC) that he had bought nearly $ 3 billion in shares on Twitter, making him the platform’s largest shareholder with a 9.2% stake. (Shortly afterwards, the Vanguard Group overtook it, now owning 10.3% of the company.)
Musk then offered to buy Twitter directly for $ 54.20 a share – 38% higher than Twitter closed on April 1, the last trading day before his stake in the company was made public – saying it was his “final offer”. While Twitter seems ready to reject the deal, Musk can still buy additional shares of the company on the open market or win shareholder support in the event of a vote.
Jack Dorsey, founder of Twitter and former CEO, tweeted Friday that such surprise purchases have always been a risk to the company. “As a public company, Twitter has always been for sale,” he said. “That’s the real problem.”
To prevent such a buyout, Twitter has used a relatively rare method called the “poison pill” plan. In this limited shareholder rights agreement, existing shareholders can buy shares at a significant discount to dilute the shares of new investors and protect their property.
Will Twitter’s plan actually stop Musk’s purchase?
According to the “poison pill” plan, Musk will have to spend more and more money to maintain a majority stake in the company. In theory, a hostile investor’s money would eventually run out, but it can be more complicated in practice when you’re fighting the richest man in the world. Musk costs about $ 260 billion.
Twitter’s plan for a “poison pill” will only take effect if Musk (or any other potential buyer) acquires more than a 15% stake in the company. Because this burden is so great, such plans have been triggered only a few times in history, said Alon Kapen, a corporate lawyer with experience in compliance with the SEC.
The Twitter board responded to Musk’s proposal with a plan for a “poison pill” that could block his attempt to buy the company. Photo: Jeff Chiu / AP
“No rational buyer would knowingly exceed this threshold,” he said.
But Musk has already indicated that he may be willing to exceed that threshold by rejecting Twitter’s offer of a executive position on the board of directors – which came on the condition that his share of ownership in Twitter would remain below 14.9%.
Why is Musk doing this and is it serious?
Musk is known for his crazy antics, disrespectful public statements and unexpected business decisions – so you’ll be forgiven for doubting whether his threats to buy Twitter are legal.
This will not be the first time Musk has been caught bluffing. He famously tweeted in 2018 that he would make Tesla private and declared that he had secured funding for what the SEC was disputing. The move cost him $ 20 million under an agreement with the SEC, prompting him to promise to check tweets about Tesla in advance (a measure he has been accused of violating repeatedly since).
In the 2018 incident, Musk valued Tesla’s stock at $ 420 a share, a joking reference to marijuana. His offer to buy Twitter this week was priced at an equally cheeky $ 54.20 per share.
Such offers make many wonder if it’s all a joke for Musk, said Karen Kornble, a senior fellow and technology policy expert at the German Marshall Fund – or strategic.
“He has this huge platform and he maintains it by doing unexpected and seemingly crazy things,” she said. He often seems to benefit from chaos.
Musk also has a personal history with Twitter: he faced a defamation lawsuit after using the platform to call the groundless diver who rescued a team of young footballers stranded in a flooded cave in Thailand a “pedo man.”
The SEC is investigating him for his 2018 tweets about Tesla being private, and is re-investigating him on recent insider trading allegations related to his tweets. Although these experiences seem to have caused a personal vendetta against Twitter, Musk’s problems are not necessarily universal.
“Outwardly, he seems to be saying that everyone should be able to say what they want on Twitter, which is an attractive argument for some,” Cornbl said. “But this is a special case – it’s about complying with SEC regulations, not freedom of speech.”
What would Elon-run Twitter look like?
Civil rights experts have sounded the alarm over Musk-controlled Twitter, which focuses on “freedom of speech.”
Declaring himself an “absolutist of freedom of speech”, the billionaire called for the abolition of policies and practices to moderate the content of the platform, a prospect that the non-profit group Muslim Advocates called “extra worrying.”
“Online hate speech is a serious threat to the nation’s marginalized communities and often turns into offline attacks,” said Sumaya Wahid, a senior political adviser at Muslim Advocates.
As for the structure of Twitter, Musk was clear that he would make Twitter private, but tweeted that he would “seek to keep as many shareholders in privatized Twitter as the law allows.”
More broadly, some civil rights advocates say the Musk episode shows how technology companies and those who control them have too much power over millions of users.
Elon Musk said he would make the company private and make it a “freedom of speech” paradise. Photo: Hannibal Hanschke / Reuters
“Social media platform users must not succumb to the whims of bombastic billionaires who are disconnected from reality and lack a real commitment to free expression, racial justice and democracy,” said Jessica Gonzalez, co-executive director of the non-profit social justice organization. Free Press.
What does this mean for the ongoing US investigation against Musk?
Musk’s attempts to buy Twitter are coming, as he is already under the microscope about the SEC deals.
In February, Musk accused the agency of harassing him and his company with “endless” investigations in retaliation for his voices to regulators.
“The SEC seems to be targeting Mr Musk and Tesla for an ongoing investigation, largely because Mr Musk remains an outspoken critic of the government,” wrote Alex Spiro, Musk’s lawyer, in a letter last month.
Angotti said Musk’s Twitter interventions could give him additional headaches at the SEC. He failed to reveal his stake in Twitter in due time, which means he is almost certain to face a fine. In addition, the SEC is likely to investigate whether he really had the funds to buy Twitter when he offered to do so this week.
“There will be a lot of dissection of what he said when and whether he meant it,” she said.
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