Whey Finance

Elon Musk wants to buy Twitter, make it ‘maximum trust’

In 10 days, Tesla CEO Elon Musk went from being a popular Twitter contributor and critic to the company’s largest individual shareholder to potential owner of the social platform — a whirlwind of activity that could dramatically change the service given self-identification as a free speech absolutist.

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

“I believe freedom of speech is a societal imperative for a functioning democracy,” Musk said in the filing. “I now realize that the business will not thrive or serve this societal imperative in its current form.”

Later that day, during an on-stage interview at TED 2022, he went even further: “Having a broadly inclusive, maximum-trust public platform is extremely important for the future of civilization. “

Since bursting onto the scene in 2006, Twitter has been home to thriving social and political commentary, shared news, scandalous gossip, cat memes and dress-color arguments. But it has also provided a platform for viral misinformation and lies, bullying and hate speech and gangs of trolls who can shout posters they disagree with setting off tidal waves vile images, threats and similar acts of aggression online.

Twitter has put a lot of effort into supporting the latter while preserving the former – but not always in a way that satisfies most users. Like other platforms, it has established restrictions on tweets that threaten violence, incite hatred, intimidate others and spread misinformation. These rules drove Twitter’s decision to ban former President Donald Trump following the 2021 Capitol uprising.

Twitter has also become a destination for brands and advertisers, many of whom prefer tighter content restrictions, and a bullhorn for high-profile figures like Trump and Musk, who have used it to rally followers and promote businesses. commercial.

Musk, who has described Twitter as a “de facto public square,” detailed some specific potential changes on Thursday — like 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 artificial intelligence technology that drives Twitter’s feed so people have more transparency about why certain tweets might go viral and others might disappear. . “I personally wouldn’t be here to edit tweets,” he said, “but you would know if something was done to promote, demote, or otherwise affect a tweet.”

The billionaire has been a vocal critic of Twitter, primarily due to his stated belief that it does not uphold the principles of free speech. The social media platform has angered supporters of Trump and other right-wing political figures whose accounts have been suspended for violating its content standards on violence, hate or harmful misinformation. Musk has described himself as a “free speech absolutist,” but he’s also been known to block other Twitter users who question or disagree with him.

While Twitter’s user base remains much smaller than competitors such as Facebook and TikTok, the service is popular with celebrities, world leaders, journalists and intellectuals. Musk himself has over 81 million followers, rivaling pop stars such as Lady Gaga.

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

Musk called that price a final offer, though he didn’t provide any details on financing. The offer is non-binding and subject to financing and other conditions.

Twitter said it will decide whether accepting the offer is in the best interests of shareholders. It’s unclear, however, how Twitter’s board will react after evaluating the offer. He will likely negotiate, seeking a higher price per share, or he may want provisions to ensure the board remains independent of Musk, said John Coffee, a professor at Columbia University School of Law. and Director of its Corporate Governance Center.

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

At the TED talk, Musk said he had the money. “I could technically afford it,” he laughed.

If Musk is successful with his takeover bid, he could likely raise the roughly $43 billion he needs, possibly borrowing billions using his stakes in Tesla and SpaceX as collateral.

Most of Musk’s fortune, estimated by Forbes at nearly $265 billion, is tied to Tesla stock. The company allows executives to use shares as collateral for loans, but limits borrowing 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, according to a Tesla proxy statement. That means Musk could use the remaining stake to borrow around $21.5 billion. It could also borrow against its stake in the private company SpaceX.

Musk revealed in regulatory filings over the past few weeks that he bought Twitter shares in near-daily batches starting Jan. 31, ending up with a roughly 9% stake. Only Vanguard Group controls more Twitter shares. A lawsuit filed Tuesday in federal court in New York alleged that Musk unlawfully delayed disclosing his stake in the social media company so he could buy more shares at lower prices.

The U.S. Securities and Exchange Commission could punish Musk for hurting other investors by taking too long to disclose his Twitter stock buyout, but it’s unlikely to do anything to prevent a take. control, said Chester Spatt, former chief economist of the SEC.

“It’s going to unfold pretty quickly,” said Spatt, now a professor of finance at Carnegie Mellon University.

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

However, there is “a lot of material to investigate” whether anyone with knowledge of Musk’s stock purchases traded in stocks prior to Musk’s public disclosures, Frenkel said.

After Musk announced his participation, Twitter quickly offered him a seat on its board of directors 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 move coincided with a barrage of now-deleted and not-always-serious tweets from Musk proposing major changes to the company, such as removing ads — its main source of revenue — and transforming its San Francisco headquarters into a homeless shelter.

The turnaround led CEO Parag Agrawal to warn employees earlier this week that “there will be distractions ahead” and to “mute the noise and stay focused on work”.

Twitter didn’t do as well as its social media rivals and lost money last year. The company reported a net loss of $221 million for 2021, largely related to the settlement of a lawsuit filed by shareholders who said the company misled investors about its user base growth and the number of users interacting with its platform. Its co-founder Jack Dorsey stepped down as CEO at the end of November and was replaced by Agrawal.

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