Elon Musk Makes His Next Move on Twitter: Inside the Looming Proxy Battle
April 13, 2022
Every billionaire needs his media platform. Hearst had the New York Journal, Turner has CNN, Murdoch has Fox News, Bezos has the Washington Post, and Elon Musk might just get Twitter.
Update: On April 14, 2022, just as I was writing this article, Elon offered to buy Twitter outright.
In a statement to Twitter’s Board, Elon stated:
“I invested in Twitter as I believe in its potential to be the platform for free speech around the globe, and I believe free speech is a societal imperative for a functioning democracy.”
According to Musk, the social media company needs to go private because it can “neither thrive nor serve” free speech in its current state.
“As a result, I am offering to buy 100% of Twitter for $54.20 per share in cash, a 54% premium over the day before I began investing in Twitter and a 38% premium over the day before my investment was publicly announced,” he wrote. “My offer is my best and final offer and if it is not accepted, I would need to reconsider my position as a shareholder.”
It’s no coincidence that Elon has embedded his favorite “420” marijuana meme into the purchase price, something he is fond of doing whenever numbers are involved.
After purchasing almost 10% of Twitter, making him the single largest shareholder, Musk and Twitter both made announcements that he would be joining the company’s board. The stock of Twitter was immediately up 25% on the news. Excited about his board position, Elon tweeted new ideas for Twitter such as paid accounts, ad-free subscriptions, edit features, and the like. Even Twitter’s CEO, Parag Agrawal joined these discussions as Elon posted various “important” polls on Twitter, ingeniously using Twitter’s own polling feature to ask its users whether Twitter should add an “edit” function to tweets.
But then Musk abruptly pulled out. After meeting and presenting its Board terms to Elon, which likely included provisions such as limiting him to 15% ownership in the company, strict confidentiality and other fiduciary duties, something else rubbed Elon the wrong way — — did Twitter’s board attempt to impose other conditions on Musk’s membership on the board, such as limiting his messaging on Twitter, and perhaps even limiting his ability to change Twitter’s censorship and content policies?
Here is what the CEO said about the awkward meeting:
Whatever it was, something akin to an SEC letter made Musk walk away from the deal. Following this news, Twitter’s stock dropped over 7%, and Musk cryptically tweeted “weather is fake, I seen Truman Show” and “69.420% statistics are fake”. In one foul swoop, Musk made a billion, ostensibly joined the board, left the board, lost hundreds of millions, and then made numerical innuendos on Twitter in frustration. Just another day in the life of the wealthiest person in the world. So what happened?
Like so many corporations these days, Twitter’s management likely caved to internal pressure from employees and group think fears about Elon and his free speech demands. He is also known for posting controversial memes which trigger people and probably Twitter’s own employees and the thousands of “content moderators” (or censors) feared that they could suddenly find themselves out of work if Elon was in management.
For someone who rarely tweets, Twitter’s CEO then tweeted that Musk’s decision was “good” for the company and that Twitter would face many “distractions” ahead. Although he didn’t tell us what those distractions would be, something tells me Twitter feared a shareholder proxy war with Musk. Now Musk is putting Twitter’s Board and its shareholders on the spot — accept a generous buy out offer, or dig in and continue Twitter’s current censorship policies which will likely alienate Musk and force him to invest elsewhere.
Musk’s instincts are right. Twitter is failing to monetize its platform and is alienating users through its content and censorship policies which are increasingly viewed as politically biased. Large swaths of conservative and libertarian users are simply abandoning the platform and making their way towards fledgling copycat sites such as “Gab” or “Truth Social”. However, those sites are getting nowhere and even Trump doesn’t actually use “Truth Social”.
To make his point about trust in mainstream media, Elon tweeted a poll that showed that Republicans, Democrats and Moderates have radically different levels of trust in major news sites such as CNN, the NY Times and Fox News, fracturing badly across party lines. (Lower trust in the Weather Channel by Republicans and Independents is also odd).
In any event, Elon rightly realizes that by making some simple tweaks and adjustments to Twitter, it can be reinstated as the largest public sphere in the world for both news and messaging. In Musk’s vision, the platform should moderate free discourse without political alignment. He wants to craft Twitter into a free speech media/news platform that aligns with his vision of the world and make it a more profitable company in the process. That seems to be working with Tesla and SpaceX. So why not Twitter?
Regardless of Elon’s intent or grand visions in taking over Twitter, the implications of his share ownership are clear. A large enough purchase of its common shares buys Musk a seat on the Board. But there he will have to play by the rules, which he is loathe to do. That’s not his style as we have seen from Tesla and his board disputes there — remember his infamous “taking Tesla private for 420” that landed him in hot water with the SEC.
But Elon knows well that shareholders who own 51% or more of the outstanding shares can effectively run the company. They can vote out the existing Board, insert their own members, and then change the company’s mangers, its policies and algorithms.
If the Board won’t let Elon make the changes to turn Twitter around, Musk needs to decide whether he will double down on his shares or abandon this idea as some novel whim, i.e, “reconsider” his share purchase as he said and simply dump his shares. As the richest man in the world, worth over $265 billion, Musk can easily buy Twitter, as the company has a market cap of over $35 billion — some of it now largely attributed to Musk pumping the shares up after his purchase.
Will the company accept his offer? It certainly seems like a generous premium over the current market cap and Elon can probably run the company better. If the company won’t accept his offer, Musk has the option to launch a proxy war. He can start buying more shares and allying with other large institutional share holders or even retail investors. While there may not be enough outstanding shares in the market for Elon to outright buy 51% of the company and wage a coup-d’etat, if he gets enough shares and other shareholders on his side, Elon can wage an effective proxy fight for the company by changing how the shareholders vote. He has also asked if the shareholders can sue the company for turning down his offer. That’s an interesting angle as well.
While Zuckerberg and Facebook eventually disappear into the “meta-verse” and Jack Dorsey meditates somewhere, perhaps, after years of unprofitably, Twitter might just be looking at a turn around if Musk can gain control.