GP Short Notes # 629, 17 April 2022
On 14 April, billionaire entrepreneur Elon Musk offered to buy Twitter for USD 43.4 billion in cash. Musk sent in a ‘non-binding proposal’ to the Board Chairman of Twitter with an offer to acquire all of the remaining common stocks at USD 54.20 per share. Additionally, the proposal stated: “My offer is my best and final offer and if not accepted, I would need to reconsider my position as a shareholder.”
On 15 April, Twitter announced that Elon Musk was no longer the company’s largest shareholder as Vanguard Group had acquired 10.3 per cent. Twitter’s board adopted a limited duration shareholder rights plan to counter Musk’s offer . The new plan or “poison pill” unlocks the possibility of deterring a potential hostile takeover. Following this, Twitter also partnered with Goldman Sachs Group Inc and JPMorgan Chase & Co. to help the company respond to Musk’s hostile bid. This comes as Morgan Stanley had been advising Musk on his run to own the company.
On 14 April, Saudi Arabia’s Prince Alwaleed bin Talal, a significant shareholder of Twitter, rejected Musk’s offer. He said: “I do not believe that the proposed offer by @elonmusk ($54.20) comes close to the intrinsic value of @Twitter given its growth prospects.” Twitter CEO Parag Agrawal tried to convince its employees that the company would follow a “rigorous process” and decide “in the best interest of our shareholders.” He further clarified that twitter was not held hostage by Musk’s offer.
What is the background?
First, the rise of Twitter. Twitter is a micro-blogging platform where people can post only 140-character long updates with a maximum of four images, unlike other social media platforms. With over 396 million users, Twitter moved into the mainstream, with leading celebrities and politicians tweeting about almost anything. Jack Dorsey founded the organization, and it enabled an increasing openness on the internet when debates about privacy were developing. Authoritarian leaders have increasingly feared the power that Twitter grants to the citizens, with regimes constantly seeking to block the platform.
Second, Elon Musk and Twitter. Musk seeks to cast himself as the champion amongst the free speech absolutists of the 21st Century. He wants to buy the company and make it a private entity to transform the platform into a beacon of free speech. Twitter is a non-government-run entity and an enterprise.Owning Twitter would add to Musk’s credentials as a free speech absolutist, which came into the public purview during the Russia-Ukraine war. In March, despite the Ukraine government request, Musk refused to block Russian news sources’ access to Starlink in Ukraine. Given Twitter’s crucial role in shaping political agenda on both sides of the Atlantic, its ownership has become a sensitive issue. Musk played a significant role in Ukraine as he gave them access to the internet through his Starlink satellite internet service. This came after Ukraine’s digital transformation minister, Mykhailo Federov, pleaded Musk on Twitter.
Third, the endgame for Twitter. The company has launched a poison bill defence strategy, officially known as the shareholders’ rights plan, which is a mechanism that was developed in the 1980s to counter hostile takeover situations. Under the new plan, if any individual or group acquires 15 per cent of stocks without the board’s approval, it would allow other shareholders to buy additional shares at a discounted price. The company will be able to deter Musk’s hostile takeover until 14 April 2023. This would enable all shareholders to realise the full value of their investment in Twitter
Fourth, unlocking Twitter’s potential. Compared to META and Google, Twitter is a niche platform as a micro-blogging platform. It plays a critical role in amplifying narratives of politicians, business leaders, celebrities, and journalists. Musk has used Twitter as a personal playground, but his tweets have gotten him into trouble as he has been sued by the US Securities and Exchange Commission for fraud. By buying the entire company and making it private, he could bolster his personal freedom of speech and not be sued. A clash of the Silicon Valley giants would become even more imminent as a successful takeover of Twitter would allow Musk to compete with META CEO Mark Zuckerberg. Musk has already derided Zuckerberg for owning vast platforms and having too much control over existing public debates. This would lead to cyberspace becoming increasingly competitive as companies strive for control and even as governments move to control these spaces.
What does it mean?
First, the unsolicited bid by Musk. This has prompted Twitter to launch a corporate defence tactic by the name of ‘poison pill’; this means that Musk would have to negotiate directly with the board for acquiring his bid. If Musk still wants to take control of the platform, he would have to persuade investors directly to sell their shares to him, allowing him to gain control over the company. This comes as the board and the shareholders have staunchly resisted his hostile takeover.
Second, Musk seeks to transform Twitter into a free speech platform. If this happens, Twitter would increasingly become a pivotal point of concern in the State vs Big tech conflict. With States looking to mediate and control cyberspace increasingly, this seems a likely point of contention. States are slowly making it impossible for companies like Twitter to function in a vacuum as it catapults existing physical laws into the digital world to seek control and stifle voices of dissent.
Third, Plan B. Musk himself accepted that his proposal would not be accepted by Twitter shareholders and warned that he would use Plan B. He can sell all his shares in Twitter and start a new platform or hold on as an investor and waiting for the right opportunity to make a counteroffer. However, considering his eccentric behaviour when it comes to decision-making, Musk might make a turnaround.