The billionaire is launching a very public attack against the company, weaponizing its platform against it. His campaign challenges many of the conventions surrounding takeover battles.
To understand what you do Elon Musk’s highly visible and dramatic attempt to take over Twitter so unconventionally helps to see what happened the last time Twitter took on another surprise investor in the company.
This was not so long ago, and the situation developed conventionally. In March 2020, Elliott Management announced that it had acquired about 4% of Twitter’s shares. Elliott is a so-called activist investment firm. It acquires shares in public companies, then advocates for the change, hoping it will increase the value of the investment. Elliott’s investment made an initial splash in the media, prompting a series of rapidly held closed-door meetings between Elliott and Twitter management. A peace agreement followed. Twitter gave Elliott a seat on the board and agreed to increase targets for user and revenue growth. By the following summer, things were good enough between Twitter and Elliott that the two considered combining for a bid on TikTok. (In the end, of course, no one could buy TikTok.) With 175% of Twitter stock from Elliott’s initial investment, he returned his seat on the board in April 2021.
When Musk arrived last month, Twitter tried the same approach. CEO Parag Agrawal repeatedly spoke to Musk and offered him a seat on the board. But unlike Elliott, Musk turned it down — visibly doing so on Twitter after a weekend of tweets criticizing the company’s business model. Two tweets directly asked his 81 million followers for their opinions. Days later, he announced that he didn’t just want to own part of Twitter, he wanted to buy them all. Further increasing the public spectacle, he released the text message he had sent to Chairman Bret Taylor. Twitter responded by adopting a poison pill, a common defense against a hostile takeover invented during the Michael Milken-Ivan Boesky 1980s (before corporate raiders became activist investors).
@elonmusk
I tweet
Musk continued. In less than a week, he’s used a TED Talks stage to label the SEC regulators who would have to approve his buyout as “bastards,” blasted the Twitter board, recirculated a previously published pro-Musk meme originally by venture capitalist Marc. Andreessen and subtly referenced Elvis Presley’s song “Love Me Tender.” (An offer for a company is, formally, a “tender offer”.)
“A smart activist can use the power of social media and other forms of distribution to connect beyond traditional methods,” says Connor Haley, founder of activist firm Alta Fox Capital. He hasn’t gone all Musk in his latest campaign against Hasbro. But he has realized how the Internet and social media give him an intimate ability to reach the company’s shareholders and customers, strengthening his business proposition, which includes the division of its trading card unit. “I think you’ll see more and more activists take this path if they really want to drive long-term value creation.”
Musk, who bought a 9.2% stake in Twitter in early 2022, is proposing to pay $43 billion for the company, a 38% premium from the stock price level when he announced his intentions last Thursday. The poison pill move is a strong indication that Twitter’s board doesn’t like his offer, though it hasn’t yet officially rejected it. Musk has hired Morgan Stanley to advise him; Twitter has responded by hiring Goldman Sachs and JP Morgan to advise it. Agrawal, meanwhile, urged staff to remain resilient but warned them to prepare for a period of distraction. The company gets significant poison-pill protection, which will allow Twitter to sell shares at a discount, reducing Musk’s ownership. Often, activists will walk away after a company reaches for a poison pill, unwilling to bear the heavy financial costs of holding onto their large stakes once the pill takes effect.
However, Musk’s takeover bid is, indeed, unlike any other in the nearly 40 years these things have been going on. Superficially, it is the question of his wealth. While the buyout game has long attracted cash-strapped participants, no one really holds a candle to Musk (net worth: $264.6 billion). Less superficially, it’s a matter of how he’s waged his war: weaponizing the product he hopes to buy, turning Twitter into prime ground for his offensive against the company. It’s as if Henry Kravis had made his bid for RJR Nabisco by standing outside its gates and hitting the conference room windows with stale Milk-Bone dog biscuits.
“This is completely strange and unusual. Of course you got some other acquisitions recently, like Jos. A. Bank trying to merge with Men’s Warehouse,” says Carliss Chatman, a Washington and Lee professor of corporate law. (She has a popular Twitter account where she chronicles Musk’s attempt and other C-suite drama.) “But this is a rich megalomaniac trying to buy something and treating it all like a game. with a toy.”
In digitizing the corporate foray, Musk is building on the work of others. In the mid-2000s, investor Eric Jackson effectively used informal YouTube videos to promote his case against Yahoo in the mid-2000s, one of many things that went wrong for Yahoo at the time. In 2017, billionaire Bill Ackman bought ads on Facebook and Twitter to publicize his stance against ADP. Around the same time, Elliott mailed thousands of greeting cards containing a video screen and a preloaded video detailing his concerns with Arconic, an aerospace parts manufacturer. Another plan for Musk to pursue came last year, when Chewy.com founder Ryan Cohen rallied thousands of retail investors based on Twitter and Reddit to oust management at GameStop and boost its stock price.
Activists have routinely created websites detailing their investment idea for the better part of two decades, though they tend to be no more innovative than the site created by your local congressman. And even then, they still rely on press releases and traditional media to spread their messages. Case in point: Elliott Management’s Jesse Cohn, who runs his own activist investments and took Elliott’s seat on Twitter’s board, has only tweeted 34 times in six years. He only has 7,424 followers and likes to include links to official PR releases.
@elonmusk
I’m tweeting
Since Thursday, Musk appears to have stepped up his campaign, targeting most of it at Twitter executives. (Boards and buyout investors like Musk never get along during a hostile takeover. But they usually bump into each other via SEC filing or media release. Doing so via social media gives Musk the ability to build more directly support—potentially at a more viral rate than a PR release can generate.)
In a tweet exchange with crypto-billionaire Cameron Winklevoss, Musk suggested that directors could face “titanic” liability if they reject his offer, citing shareholder lawsuits against the board. He highlighted another user’s post that featured a blank image of director Robert Zoellick on Twitter. (Zoellick, the former president of the World Bank, joined the board and Twitter in 2018 and has never tweeted.) Musk also criticized board members’ small stakes in Twitter stock, suggesting that if they had more, they would better understand why they should take his deal.
Activists typically disclose early on how they plan to finance unsolicited acquisitions, something they see as necessary to win support from a company’s investors, who may be skeptical of their advances. This has not been the case for Musk. He has not detailed exactly how he will finance his bid, and while he is extremely wealthy, his wealth is illiquid, tied up in Tesla stock. He may need to borrow against those shares to raise money or bring partners into the transaction, lowering his costs. Private equity firms Apollo and Thoma Bravo are said to be interested in joining him.
It’s too early to tell if Musk will win through this strategy. But it is definitely attracting attention and support. The latter has come from the usual corners of Twitter—“If the game is fair, Elon will buy Twitter,” tweeted Musk’s former colleague at PayPal, David Sacks—and the less common. Alexis Ohanian, the co-founder of Reddit, said on Twitter that he was prompted to research poison pills for the first time, deciding that “they’re not really a good look,” a statement that could be seen as pro-Musk, anti- Twitter. board.
Musk appears to be gaining a little support from within the company. Twitter co-founder and two-time former CEO Jack Dorsey appeared to signal he agreed with Musk this weekend. Dorsey was ousted from a previous iteration of the board in a 2008 coup that ended his first term as Twitter CEO; he remained director. He returned in 2015 and stepped down as CEO in November. While he remains a board member until next month, Dorsey on Saturday nonetheless called the board “persistently dysfunctional for the company.”
Investors on Twitter increasingly seem to think that something might actually happen. After Dorsey’s tweets and Musk’s wild weekend, the stock rose 7.5% on Monday to $48.45. They’re still not completely sold on Musk’s ability to pull it off. If they were, the stock would trade for at least $54.20, Musk’s suggested price.
@elonmusk
I’m tweeting
Twitter HQ has seemed leery of meeting Musk on this new battlefield, ironically, one he helped create. (He declined to comment for this story.) While Musk tweeted on Monday how he intended to cut board member pay to $0 if he takes control, Twitter made a lengthy filing with the SEC detailing its move for the pill poisonous.
Musk has offered $54.20 per share for the company, the “420” part of the figure a reference to weed culture and a popular Internet joke. In the new poison pill filing, Twitter said shareholders can buy new shares for $210, equity worth twice that amount: $420. Maybe a coincidence. Or maybe Twitter realizes that Musk has inevitably changed the rules of the game, and to win, it needs to figure out how to play.
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