Elon Musk’s Maneuver to Buy Twitter Explained

In just ten days, Tesla CEO Elon Musk has gone from being a popular Twitter contributor and critic to being the company’s largest single shareholder and potential owner of the social platform, a whirlwind of activity that could drastically change the service given the sometimes capricious personality of the billionaire. Identification as absolutist freedom of expression.

Twitter revealed in a securities filing Thursday that Musk offered to buy the company outright for more than $43 billion, saying the social media platform “needs to transform into a private company” to build trust with its users.

“I believe that freedom of expression is a social imperative for a functioning democracy,” Musk said at the presentation. “I now realize that the company will not prosper or meet this social imperative in its current form.”

Later that day, during an interview onstage at the TED 2022 conference, he went even further: “Having a public platform that is highly trusted and broadly inclusive is extremely important for the future of civilization.”

Later that day, during an interview onstage at the TED 2022 conference, he went even further: “Having a public platform that is highly trusted and broadly inclusive is extremely important for the future of civilization.”

Since bursting onto the scene in 2006, Twitter has been home to a burgeoning social and political commentary, news shares, scandal gossip, cat memes and arguments about the color of clothing. But it has also provided a platform for viral misinformation and lies, bullying and hate speech and gangs of trolls who can shout signs they disagree with unleashing tidal waves of vile images, threats and similar acts of aggression on line.

Twitter has put a lot of effort into stopping the latter and preserving the former, though not always in a way that satisfies most users. Like other platforms, it has placed restrictions on tweets that threaten violence, incite hate, intimidate others and spread misinformation. Such rules prompted Twitter’s decision to ban former President Donald Trump following the 2021 Capitol insurrection.

Twitter has also become a destination for brands and advertisers, many of whom prefer tighter content restrictions, and a megaphone for high-profile figures like Trump and Musk, who use it to gather followers and promote business ventures.

Musk, who described Twitter as a “de facto town square,” detailed some specific potential changes on Thursday, such as favoring temporary bans over permanent ones, but mostly described his goal in broad, abstract terms.

He said he wanted to open up the “black box” of AI technology that powers Twitter’s feed so people would have more transparency about why some tweets might go viral and others might disappear. “I personally wouldn’t be there editing tweets,” she said, “but you would know if something was done to promote, demean or affect a tweet.”

Elon Musk's Maneuver to Buy Twitter Explained Explained Ideas

The billionaire has been a vocal critic of Twitter, primarily for his stated belief that it fails to uphold the principles of free speech. The social media platform has angered Trump supporters and other right-wing political figures who have had their accounts suspended for violating its content standards on violence, hate or harmful misinformation. Musk has described himself as a “free speech absolutist” but is also known for blocking other Twitter users who question or disagree with him.

While Twitter’s user base is still much smaller than rivals like Facebook and TikTok, the service is popular with celebrities, world leaders, journalists and intellectuals. Musk himself has more than 81 million followers, rivaling pop stars like Lady Gaga.

Twitter shares closed at $45.08, up just under 2%, well below Musk’s offer of $54.20 a share. That’s usually a sign that some investors doubt the deal will go through. The stock remains below its 52-week high of around $73.

Musk called that price his final offer, although he did not provide details on financing. The offer is not binding and is subject to financing and other conditions.

Twitter said it will decide whether accepting the offer is in the best interest of shareholders. However, it is unclear how Twitter’s board of directors will react after evaluating the offer. He is likely to negotiate, seeking a higher price per share, or he may want provisions to ensure the board remains independent of Musk, said John Coffee, a Columbia University law school professor and director of its center for corporate governance. .

The board could adopt “poison pill” provisions to offer more shares and dilute the value of Musk’s holdings, if Musk’s stake grows to 10% or 15%, Coffee said. Even then, Musk could still take over the company with a power struggle by ousting the current directors.

At the TED conference, Musk said he has the money. “Technically I could afford it,” he said between laughs.

If Musk goes ahead with his takeover bid, he will likely be able to raise the roughly $43 billion he needs, possibly by borrowing billions using his Tesla and SpaceX holdings as collateral.

Most of Musk’s fortune, estimated by Forbes at nearly $265 billion, is tied to Tesla stock. The company allows executive officers to use shares as collateral for loans, but limits the loan to 25% of the value of the pledged shares.

Data provider FactSet says Musk owns 172.6 million shares worth $176.47 billion. Just over 51% of its stake is already pledged as collateral, according to a Tesla proxy statement. That means Musk could use the remaining stake to borrow around $21.5 billion. He could also borrow his stake in privately owned SpaceX.

Musk revealed in regulatory filings in recent weeks that he had been buying shares of Twitter in near-daily batches beginning January 31, ending up with a stake of around 9%. Only Vanguard Group controls more Twitter stock. A lawsuit filed Tuesday in New York federal court alleges that Musk illegally delayed disclosing his stake in the social media company so he could buy more shares at lower prices.

The US Securities and Exchange Commission could punish Musk for hurting other investors by taking too long to disclose his purchase of Twitter shares, but he’s unlikely to do anything to stop a takeover, said Chester Spatt, a former economist. head of the SEC.

“This will develop reasonably quickly,” said Spatt, now a finance professor at Carnegie Mellon University.

Jacob Frenkel, a former SEC attorney who now works at the Dickinson Wright law firm in Washington, said it’s difficult to prove an investor’s intent in disclosure cases. “The mere fact of the disclosure violation does not mean that there was fraud,” Frenkel said.

However, there is “plenty of material for an investigation” into whether someone with knowledge of Musk’s stock purchases traded shares before Musk’s public disclosures, Frenkel said.

After Musk announced his involvement, Twitter quickly offered him a seat on its board on the condition that he own no more than 14.9% of the company’s outstanding shares. But the company said five days later that he had refused. The decision coincided with a barrage of now-deleted and not always serious tweets from Musk proposing major changes for the company, such as removing ads, its main source of revenue, and transforming its San Francisco headquarters into a homeless shelter.

The twist led CEO Parag Agrawal to warn employees earlier this week that “there will be distractions ahead” and to “tune out the noise and focus on work.”

Twitter hasn’t done as well as its social media rivals and lost money last year. The company reported a net loss of $221 million for 2021 tied in large part to the settlement of a shareholder lawsuit that said the company misled investors about how much its user base was growing and how much users were interacting with its website. platform. Its co-founder, Jack Dorsey, stepped down as CEO at the end of November and was succeeded by Agrawal.

“I’m not saying I have all the answers here, but I think we want to be very reluctant to remove things and be very cautious about permanent bans,” Musk said. “It won’t be perfect,” he said, but there should be a perception and reality that speech is “as free as reasonably possible.”

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