He is making a huge public attack on the company by using his own platform to destroy it. He defies the conventions of buyout battles.
TIt is important to understand the meaning of “make” Elon Musk’s highly visible and dramatic attempt to take over Twitter so unconventional, it helps to look at what happened the last time Twitter encountered another unexpected investor in the company.
That wasn’t very long ago, and the situation did play out conventionally. Elliott Management reported that in March 2020 it bought approximately 4% Twitter shares. Elliott Management is known as an activist-investing company. It acquires stakes in public companies, then advocates for change, hoping it will boost the investment’s value. Elliott’s investment made an initial splash in the media, prompting a series of swiftly held closed-door meetings between Elliott and Twitter management. A peace deal followed. Twitter gave Elliott a seat on its board and promised to increase revenue and user growth targets. Things were so good between Elliott and Twitter that Elliott agreed to a board seat. The end result was that no one bought TikTok. With Twitter stock up 175% from Elliott’s initial investment, it gave back its board seat in April 2021.
Twitter attempted the same strategy when Musk arrived in October. Parag Agrawal the CEO repeatedly spoke with Musk, offering him a place on their board. But unlike Elliott, Musk turned it down—doing so visibly on Twitter after a weekend of tweets criticizing the company’s business model. In two tweets, he asked his 81,000,000 followers to share their views. Days later, he announced he didn’t want to just own PartTwitter and wanted to purchase it all. The public spectacle was further magnified when he posted the text messages he had written to Bret Taylor. Twitter adopted the poison pill to defend against hostile takeovers. It was an invention of Michael Milken-Ivan Boesky in 1980s, before activist investors became corporate raiders.
Musk went on. In less than a week, he has used a TED Talks stage to label the SEC regulators who’d need to approve his acquisition as “bastards,” assailed Twitter’s board on Twitter, recirculated a pro-Musk meme originally published by the venture capitalist Marc Andreessen and cryptically referenced the Elvis Presley song “Love Me Tender.” (A bid for a company is, formally, a “tender offer.”)
“A smart activist can leverage 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 full Musk in his latest campaign against Hasbro. But he has recognized how the internet and social media give him an intimate ability to reach the company’s shareholders and customers, bolstering his proposals for the business, which include spinning off its trading-cards unit. “I think you’ll increasingly see activists take this route if they really want to drive long-term value creation.”
Musk bought a 9.2% share in Twitter in the early 2022 and proposes to spend $43 billion. This is 38% more than the price of the shares at which he made his announcement last Thursday. The poison pill measure is a strong indication Twitter’s board doesn’t like his offer, though it has yet to formally turn it down. Musk hired Morgan Stanley as his advisor; Twitter responded by hiring JP Morgan and Goldman Sachs to help it. Agrawal advised his staff that they must remain strong, while cautioning them against being distracted for some time. The company receives some substantial protection by the poison pill, which will let Twitter sell discounted stock, reducing Musk’s ownership. Many activists leave after companies reach for the poison pill. They are not willing to pay the high financial cost of keeping their large shareholdings after the law is passed.
Nonetheless, Musk’s takeover attempt is, truly, unlike any other in the 40 years or so these things have been going on. Musk’s wealth is apparent. Musk’s net worth of $264.6 million is a testament to his wealth. While buyouts have been a long-standing game for wealthy participants, few can match Musk. Less superficially, there’s the matter of how he has waged his war: weaponizing the very product he hopes to acquire, turning Twitter into the main staging ground for his offensive against the company. It’s as if Henry Kravis had pressed his bid for RJR Nabisco by standing outside its gates and pelting the boardroom windows with stale Milk-Bone dog biscuits.
“This is totally weird and unusual. Sure you’ve got some other takeovers lately, like Jos. A. Bank trying to merge with Men’s Warehouse,” says Carliss Chatman, a professor of corporate law at William and Lee. (She has a popular Twitter account, where she has chronicled Musk’s attempted takeover and other C-suite dramas.) “But this is some rich megalomaniac trying to buy something and treating it all like playing with a toy.”
Musk draws on other people’s work in digitizing the corporate raid. In the middle of 2000s, Eric Jackson, an investor, used YouTube videos as informal marketing materials to support his case against Yahoo. It was just one example of many that failed for Yahoo at the time. Bill Ackman, a billionaire, bought advertisements on Facebook and Twitter in 2017 to promote his opposition to ADP. Elliott also sent thousands of cards with a greeting card containing a screen and preloaded videos detailing his qualms about Arconic (an aerospace-parts manufacturer). Last year was another example for Musk: Ryan Cohen, Chewy.com’s founder and CEO, gathered thousands of Reddit and Twitter-based retail investors and overturned GameStop management to buoy stock prices.
For the past two decades activists have set up websites to explain their investment ideas. However, they are not as innovative as the sites set up by local representatives. Even then, activists still depend on traditional media and press releases to communicate their message. Case in point: Elliott Management’s Jesse Cohn, who leads its activist investments and sat in Elliott’s seat on the Twitter board, has tweeted just 34 times in six years. Only 7,424 people follow him and enjoys including links to official PR reports.
Since Thursday, Musk has seemed to intensify his campaign, targeting much of it at Twitter’s directors. Musk and boards are never friends during hostile takeovers. They often lash out at one another via SEC documents or media releases. Doing so over social media gives Musk the ability to more directly build support—potentially at a rate more viral than a PR release could possibly generate.)
In a tweet exchange with crypto billionaire Cameron Winklevoss, Musk suggested the directors could face “titanic” liability if they reject his bid, seeming to advocate for shareholder lawsuits against the board. He highlighted another user’s post that screenshotted director Robert Zoellick’s blank Twitter feed. (Zoellick, the World Bank’s former president, joined both the board and Twitter in 2018 and has never tweeted.) Musk also criticized the board members’ small shareholdings in Twitter stock, implying that if they held more, they’d better understand why they should take his deal.
Activists typically reveal from the start how they plan to finance unsolicited takeovers, something they see as necessary to win support from a company’s investors, who may be skeptical of their advances. This hasn’t been the case for Musk. He hasn’t detailed exactly how he’ll fund his bid, and while he is incredibly wealthy, his fortune is illiquid, tied to Tesla stock. In order to finance the deal, he might need to borrow against these shares. Thoma Bravo, a private equity firm Apollo, is reportedly keen to join him.
Musk’s success with this strategy is uncertain at the moment. However, he’s attracting support and attention. The latter has come from the usual corners of Twitter—“If the game is fair, Elon will buy Twitter,” Musk’s former PayPal colleague David Sacks tweeted—and less usual ones. Alexis Ohanian, the Reddit cofounder, said on Twitter that he has been prompted to research poison pills for the first time, deciding “they’re really not a good look,” a statement that can be viewed as pro-Musk, anti-Twitter board.
Musk seems to be receiving some internal support. Twitter’s cofounder and twice-former CEO Jack Dorsey seemed to signal he agreed with Musk this weekend. Dorsey was fired by an earlier version of the board, ending his first tenure as Twitter CEO. He remained a director. In 2015, he returned to the board and was reelected as CEO. He resigned in November. While he remains a board member until next month, Dorsey on Saturday nonetheless called the board “consistently the dysfunction of the company.”
It seems that Twitter investors are increasingly believing something might actually happen. After the Dorsey tweets and Musk’s frenzied weekend, the stock rose 7.5% on Monday to $48.45. They aren’t yet fully sold on Musk’s ability to pull it off. Musk suggests that stock trades at minimum $54.20.
The Twitter Headquarters seemed at pains to have Musk meet them on the novel battlefield, which it, ironically, helped create. This story was not confirmed by the company. While Musk on Monday tweeted about how he intended to cut board members’ pay to $0 if he takes control, Twitter made a lengthy filing with the SEC detailing its poison pill measure.
Musk has offered $54.20 a share for the company, the “420” part of the figure a weed-culture reference and a popular online joke. Twitter stated that shareholders can acquire new shares at $210 and equity equal to $420. It could be a coincidence. Or maybe Twitter realizes Musk has unavoidably changed the game’s rules, and to win, it needs to figure out how to play.