Elon Musk Buys Twitter for $44 Billion

Twitter shareholders did launch a poison pill, but it seems that a sufficient number were lured by the $43,000,000,000 buyout Musk offered:

Larry Ellison might still be holding on to his Tesla shares, but the biggest holders were institutional. I doubt that most of the other individuals who invested in Tesla stocks do not need to worry about being able to pay their bills for essentials. I’ll bet there are many working and retired people who benefitted from the cash buyout.

Who do you think the shareholders are?

According to Yahoo Finance, 12.42% is held by insiders (that is, Twitter employees and executives) and 82.52% are held by institutions (mutual funds, ETFs, pension funds and other such organizations), leaving only 5.06% held by other individuals.

The institutions are not code for “wall street fat cats” and other people who are frequently demonized in the press, but are the vehicle with which most of the world has invested.

For example, if you have investments (maybe your retirement plan) in an S&P 500 index fund, you own some Twitter via an “institution”.

The institutional investors probably didn’t have a choice. They have a fiduciary (that is, legally mandated) obligation to maximize value on behalf of their customers. If they choose to turn down an offer that is significantly higher than market value, they risk massive lawsuits from those customers.

Similarly, the board of directors has a fiduciary responsibility to maximize shareholder value. They might be able to refuse an offer if there is another offer somewhere that they could argue is “better”, but in the absence of any significant competing offer, they will have a hard time arguing that refusal will be more profitable than acceptance.

This is also why the “poison pill” was always doomed to failure. Good luck telling the existing shareholders that you are taking action that will deliberately lower the value of their shares, not because it’s best for the company, but because you personally don’t like the person making the buyout offer. Again, that’s inviting massive shareholder lawsuits.

An individual can choose to refuse a great offer on principle, but those with fiduciary responsibilities (including the board of directors and institutional investors) really can’t. They are legally obligated to maximize shareholder value and therefore really can’t refuse a massive buyout offer like this without some explanation (one good enough to stand up in court) about how refusal could be even more profitable.

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This is commonly claimed. And yet, it’s not true (per SCOTUS).

Not so long ago it was brought up right here on this board. Too lazy to search for it myself but it’s here somewhere.

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Please share the link when you find it.

But even if it’s not a legal obligation, they are still obligated by their rules of incorporation.

As a publicly traded company, the board of directors must be periodically re-elected via their annual shareholder meetings. If the shareholders (which is mostly institutional investors who are in it for the money, not for politics) believe the board deliberately destroyed share value, they will vote out that board. And if they get really upset, they could call for a new election before the annual meeting.

Again, refusing such an offer without having a better offer somewhere or a rock-solid reason (and “we think he’s going to personally bring about the apocalypse” isn’t going to change anyone’s mind), is pretty much asking to be fired from your job.

Furthermore (a point I failed to mention before), the executives of a company are compensated mostly in stock and stock options, which often have price objectives that must be met before the shares and options will vest. Given a choice between “accept it and get very rich” and “reject it and lose most of the value of your compensation package”, only a die-hard ideologue is going to reject it over politics.

Simon is correct; the US Supreme Court ruled otherwise:

https://caselaw.findlaw.com/us-supreme-court/13-354.html

What the ruling makes clear is that value isn’t just about money.

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I just looked at Twitter’s articles of incorporation and I don’t see any such obligation. Perhaps you could point to it?

https://www.sec.gov/Archives/edgar/data/1418091/000095012313007113/filename2.htm

The American Public Media radio program Marketplace earlier this week ran a story on the alleged responsibility to “maximize shareholder value.”

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No, there isn’t a written requirement to maximize profit at the expense of everything else. But the board of directors are elected by and serve at the pleasure of the stockholders:

  • Section 4.5(a) states that there are 7 directors, elected by different blocks of shareholders
  • Section 4.5(d) states that the shareholders can vote to remove directors

So yes, there is nothing that forces the directors to accept or recommend accepting such a deal. But the practical reality is that if they refuse and tell others to refuse, the shareholders (especially the institutional investors) are going to demand a good reason why, when acceptance means nearly doubling the value of their investment.

And a poison pill makes matters even worse. Then they would have to explain to those shareholders why they are not only refusing to accept a deal doubling the stock’s value, but are in fact taking steps to drastically slash the value of existing shares by issuing massive blocks of new shares that will only be sold to insiders that agree with the board’s decision.

It takes a lot to convince institutional shareholders to vote out a board of directors, but something like this could easily do it, and the directors know it. Very few people are going to sacrifice their own net worth and their jobs over this.

It’s not like the corporate raider scenario (where poison pills have been used), where the board can argue that the company will be broken up and dissolved if the deal goes through. There is no hint of that in this situation - the only objections to the deal is that many people simply don’t like Musk as a person, and that’s not going to convince investors to accept the corresponding losses.

That’s what I thought. Thanks.

The point I would highlight is that there’s a vast difference between Twitter having a legal requirement (either through the law or their articles of incorporation) to maximize profits and stock price, and Twitter having to answer to shareholders who have a variety of different interests. One’s the law and the other is a discussion. The Twitter stockholders may be most interested in those values, but they may also be responsive to an argument that selling to Musk would turn Twitter into a version of Truth Social or Gab, neither of which have flourished.

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Canada is also considering social media regulation. Not saying it’s a good idea.

TidBITS and Twitter, eh? Then, again, is IS, after all, your publication, ACE. Talk about “The Thread That Wouldn’t Die” topic and the proverbial can of worms.

Twitter is a sewer and has been since its inception. When I ran a multi-line BBS, I validated every, new sign-up. There were NO nom de plumes and first AND last names accompanied every post. For the years the BBS lasted, it was popular and busy.

Character can be defined by what one will do when no one is watching and what they will do when their actions/words will not directly benefit them. My guess is that, even the most honorable among us, when assured of no accountability, will run amok from time-to-time.

Bravery can be defined by saying what one will while, at the same time, signing-off using their REAL name. I have been doing so since the first time I posted in a public forum - and that was on newsprint. So far, my home hasn’t been torched. Of course, I keep my insurance up-to-date.

I am particularly amused observing the panicked gyrations of those with a particular sociopolitical conviction over the acquisition of the sewer by the electric dragster/spaceship guy. Everyone can just relax: It’s a cinch the service can’t get much WORSE.

I was an early member of Cafe Utne, still going as a forum, and we had moderated conversations, on occasion heavily moderated. Real names, people came from the States and visited me in person, we visited long term contacts in the US at several points too. It was real nice to meet up face to face after years of chat online.

Would I do that with Twitter? Perhaps, but with only a few individuals. I have had very positive experiences with users, mainly through being quite selective about who I follow and who can follow me. I was part of the very first wave but blocked a good deal of characters over the years.

What Twitter is strong at is gauging the various tribal responses to issues of interest, in my case film, education, tech and photography and the place where I live.

I would dispute that it is irredeemably awful, in many cases it is a vital current response to events of interest. A kind of impromptu always ready newsroom.

As a public arena however it is unruly and only so useful and given the lack of real conversation only so good. For quality give me a forum I respect any day. The TidBITS slack channel as a gathering of trusted and focussed and intelligent posters is a better place to view an Apple launch than the stream of repetition such events prompt on Twitter.

The political tribes, including the likely return of the last president being perhaps the prime example, are far less appealing if not downright disturbing. The key worry is that what happens on our devices has become important, and actual life as lived by the 80% of the people who don’t ever look at Twitter is impacted by the chattering classes who do. I have found that you can carve out a positive space on Twitter but it takes work, but equally people can carve out negative spaces and that doesn’t take much work at all…

The Founding Fathers would disagree.

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In general, I’m a great believer in putting your name on anything you post, but I do acknowledge that there are some very good reasons for anonymous or pseudonymous posting, particularly where personal safety is at risk.

However, and I realize I’m no Twitter expert, but it seems to me that there’s effective anonymity in the number of users on Twitter at this point. Sure, there may be a name associated with a post, but with hundreds of millions of users, most names aren’t that different than random collections of characters that might or might not actually identify a person. If there are no social consequences to posting, there’s no downside in signing your posts.

And more to the point, the algorithm ensures that controversial posts that generate lots of engagement are rewarded, which does the exact opposite of encouraging constructive, civil discourse. Predicting Elon Musk is a fool’s game, but his past behavior doesn’t suggest to me that he sees civil discourse as a goal.

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And Twitter has had big and longstanding disinformation, hate speech, bullying and harassment problems:

Is Musk’s position on “free speech” going to make the problems any better?

I think that’s a bit of thin hope for, eg, Russian journalists to rely on.

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Which is exactly why I said:

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Separating who deserves anonymity from who doesn’t is going to be really difficult. Who decides?

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Clearly, Elon Musk. :slight_smile:

There are too many variables to know what will or will not happen with Twitter. It just seems to me that a lack of anonymity, if Musk takes it in that direction, probably won’t improve the level of discourse for the reasons I stated but will ensure that people for whom anonymity is essential for personal safety jump ship. I don’t know if Musk would care either way. I don’t care for myself, since I don’t like or use Twitter particularly, but all I can do is hope that it becomes less of problem for society at large than it is now.

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And now, Elon Musk says he isn’t buying Twitter after all. Given the ups and downs of this story, I don’t even want to publish an ExtraBIT about it, since for all we know, the deal could be back on tomorrow. The best thing to come up the entire debacle is that @glennf turned me on to Matt Levine’s newsletter, which is so amusing that I read about the world of high finance even though I have no actual interest in it. Here’s what Matt wrote about Musk pulling out of the Twitter deal.

https://www.bloomberg.com/opinion/articles/2022-07-09/elon-s-out

And more on it today:

https://www.bloomberg.com/opinion/articles/2022-07-11/the-price-of-not-buying-twitter

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