Pressure Mounts on Twitter’s Board as Elon Musk Hints at Potential Tender Offer

By Emel Akan
Emel Akan
Emel Akan
reporter
Emel Akan is White House economic policy reporter in Washington, D.C. Previously she worked in the financial sector as an investment banker at JPMorgan and as a consultant at PwC. She graduated with a master’s degree in business administration from Georgetown University.
April 20, 2022 Updated: April 21, 2022

Ownership contest for Twitter has devolved into a chess game after the company’s board last week adopted a poison pill to thwart an unwelcome takeover attempt by the world’s richest man, Elon Musk.

Many people around the world, including the company’s stockholders, are now eagerly awaiting the billionaire’s next move.

Musk on Tuesday posted a mysterious message on Twitter that had a blank space for a word followed by the phrase “is the Night.” The message was thought to be a veiled reference to F. Scott Fitzgerald’s novel “Tender Is the Night.”

Tesla and SpaceX CEO had earlier posted a tweet that read “Love Me Tender,” which was surrounded by musical notes.

The messages fueled speculation that Musk may launch a tender offer to acquire the firm, meaning he would approach Twitter shareholders directly and offer to buy their shares for a certain price within a specific time frame.

Musk made a bid on April 14 to take the social media company private for $54.20 per share, or around $43 billion in cash. The firm’s board of directors the next day unanimously adopted a “poison pill” defense to prevent a hostile takeover.

It’s uncertain whether Musk will be able to secure enough shareholder support to persuade the board to remove its poison pill and opposition to the offer.

This week, numerous media outlets reported that Apollo Global Management is considering financing Musk or another bidder for a Twitter buyout. New York Post also reported that Musk could team up with other large shareholders, such as private equity firm Silver Lake Partners, which already owns a significant stake in the social media company.

Silver Lake declined to comment, and Apollo did not respond to The Epoch Times’ request for comment.

Musk should be targeting big shareholders, according to a senior executive at an investment management firm who requested anonymity.

“What is more likely is probably Musk doing a proxy contest and try to meet with the big shareholders to convince them of his plan and get them to his side either by taking his tender offer or kick out the existing board,” he said.

“Jack Dorsey already seems to be angry at the board,” he noted.

Over the weekend, Twitter co-founder Dorsey sent a critical tweet, claiming that Twitter’s board has continuously been the company’s “dysfunction.”

Twitter CEO Jack Dorsey
Twitter CEO Jack Dorsey testifies to Congress in Washington on Sept. 5, 2018. (Drew Angerer/Getty Images)

Dorsey stepped down as CEO of the social media platform in November last year and Parag Agrawal took over. Dorsey still owns 2.4 percent of Twitter, while the rest of the company’s top officers and directors own only 0.3 percent.

‘Chess Game’

The board of Twitter has employed the poison pill, also known as a shareholder rights plan, as a defense strategy to make Musk’s takeover more expensive and difficult.

If Musk reaches 15 percent ownership, the poison pill will be triggered. This will allow other stockholders to purchase additional shares at a discounted price, thus diluting Musk’s ownership stake.

On April 4, Musk announced that he owned 73.5 million Twitter shares, or 9.2 percent of the firm. Musk later reduced his holdings to 73.1 million shares, or 9.1 percent of the company, according to an SEC filing. Other large shareholders of Twitter are The Vanguard Group (10.3 percent), Morgan Stanley (8.4 percent), and BlackRock (6.5 percent).

“What we’re witnessing is a bit of a chess game in public,” says Dale Saran, an attorney, who helped fitness company CrossFit avoid corporate takeover as company’s general counsel in 2012.

Musk’s public prominence and ability to influence shareholders, Saran said, should be putting a lot of pressure on Twitter and its legal counsel.

Before submitting his bid on April 14, Musk sent a voicemail to the board, according to the SEC filing, stating that he’s “not playing the back-and-forth game.”

“It’s a high price and your shareholders will love it,” Musk said, adding that if the deal falls through, he will reconsider his position as a shareholder.

Some have speculated that the billionaire businessman lacks sufficient cash for the acquisition, and thus he is not a serious bidder.

But, if Musk has other investors, Saran said, who are willing to get on board with his stated goals, then it could make it harder for the board to claim that he was not a serious bidder.

“It would remove one piece of what would be their defense, if this winds up in a lawsuit.”

Epoch Times Photo
Florida Gov. Ron DeSantis holds press conference in The Villages and signs SB 7044 on April 19, 2022. (Screenshot, The Florida Channel)

Time to Get off Twitter?

Twitter’s board is under pressure since the stock’s upside potential is currently limited. Goldman Sachs, for example, has a “sell” rating on the stock with a price target of $30 per share. Ironically, the bank is advising Twitter’s board on Musk’s offer.

It’s unlikely that the board will find any buyer willing to pay much higher than Musk’s offer price, according to some market commentators.

Barron’s senior writer Bill Alpert says under its present management and business model, Twitter stock is unlikely to revisit last year’s $80 peak.

The company’s stock is currently trading at $46. Shares were up nearly 20 percent since April 4 when Twitter confirmed that Musk had acquired a significant stake in the company.

“Unless you’re like Musk and want to own Twitter for idealistic reasons, you should let him have it. He won’t ruin it, so you can do so with a clear conscience,” Alpert wrote in a recent article.

Steve Forbes, chairman and CEO of Forbes Media, says if Musk withdraws his bid, Twitter’s stock “would collapse.”

“The stock has stuck since it went public eight years ago, and has not been a good performer,” he told Fox Business on April 15.

“So, people are counting on [Musk],” he added. “What gives the stock value is the prospect that he’s going to give it value by making needed changes, starting with free speech.”

On Tuesday, Florida Gov. Ron DeSantis also weighed in on Musk’s Twitter buyout saga, saying that his state would look into holding Twitter’s board accountable for breaching its fiduciary duty by adopting a poison pill.

DeSantis said, during a press conference, that the state and its pension fund own some Twitter shares and the fund was likely harmed.

In a 2011 paper, Lucian Bebchuk, a Harvard Law professor said “the empirical evidence indicates that when directors use their power to block offers, it often proves detrimental to shareholder interests.”

According to Bebchuk and his colleagues’ findings, boards that reject premium bids fail to generate optimal long-term returns for their shareholders.

Emel Akan
reporter
Emel Akan is White House economic policy reporter in Washington, D.C. Previously she worked in the financial sector as an investment banker at JPMorgan and as a consultant at PwC. She graduated with a master’s degree in business administration from Georgetown University.