Twitter is struggling with Elon Musk’s problem

SAN FRANCISCO – Elon Musk sent a new surprising document to the government early Monday morning.

In it, the world’s richest man outlined his possible intentions towards Twitter, in which he gained a 9.2 per cent stake, underlining how drastically his position has changed from a week ago.

Mr Musk could, if he wishes, buy more shares of Twitter and increase his ownership of the company, according to a document filed with the Securities and Exchange Commission. He was free to express his views on Twitter on social media or other channels, the document said. And he reserved the right to “change his plans at any time, as he sees fit.”

It was a promise – or maybe it was a threat. In any case, the report covered the treacherous situation in which Twitter now finds itself. Mr. Musk, 50, Twitter’s largest shareholder and one of its top-profile users, could very well use the social media platform against himself and even buy enough shares to take over the company.

“Twitter has always suffered more than its fair share of dysfunction,” said Jason Goldman, who was on Twitter’s founding team and has been on its board of directors in the past. “But at least the potential board members weren’t actively trolling us using the product we created.”

The application followed a week-long drama of big roles between the billionaire and the company. Last Monday, Twitter revealed that Mr. Musk has accumulated shares, now worth more than $ 3 billion, in the company. A day later, he was invited to Twitter’s 11-member board and agreed not to own or take over more than 14.9 percent of the company. Then on Sunday Twitter suddenly said that all those bets were withdrawn and that Mr. Musk will not become a director.

It is unclear what exactly happened between Mr. Musk, who has more than 81 million followers on Twitter, and the company’s CEOs and board members. But it leaves Twitter – which has survived conflicts between founders, board riots and the wrath of outside shareholders – with an investor activist unlike any other.

Mr. Musk, who also runs electric car maker Tesla and rocket company SpaceX, is known for being unpredictable and open, often using Twitter to criticize, insult and troll others. By no longer joining the board, he freed himself from corporate governance rules that would require him to act in the best interests of the company and its shareholders.

Mr. Musk took refuge in that freedom after his decision was announced to the company on Saturday morning. He announced on Twitter that he was in “goblin mode” and suggested changes such as removing the “w” from the company’s name to make it more vulgar and opening a San Francisco headquarters for a homeless shelter. He later deleted some of the posts.

“This is not typical activism or, frankly, anything like the activism we’ve seen before,” said Ele Klein, co-chair of the global shareholder activism group at Schulte Roth & Zabel. “Elon Musk doesn’t do things people have seen before.”

Patrick Gadson, co-head of practice for shareholder activism at another law firm, Vinson & Elkins, said he feels sympathy for Twitter. “I would never want any director I represent, or any director at all, to have to deal with this situation,” he said.

Mr Musk did not respond to requests for comment. He did not directly comment on the situation regarding the Twitter board, but he liked the tweet which suggested that the company wanted to restrict his rights to freedom of speech.

Parag Agrawal, CEO of Twitter, alluded to how Mr. Musk had to act as a “fiduciary of the company” in post on Sunday. Twitter, which posted a biography of Mr Musk as a member of its committee that was still visible late Sunday, declined to comment on Monday.

Credit …via Twitter

Mr. Musk has long shown significant non-compliance with corporate governance rules. In 2018, he faced charges of securities fraud after incorrectly tweeting that he had secured funds to take over Tesla privately. Mr. Musk later agreed to pay a $ 20 million fine to the SEC and resigned as president of Tesla for three years.

He also agreed to allow Tesla to review his public statements about the company. But in 2019, the SEC asked the judge to declare him disrespectful for violating the terms of the settlement, continuing to tweet about Tesla by mistake.

Inside Twitter on Monday, employees were stunned and worried about Mr. Musk’s mischief, according to half a dozen current and former workers, who were not authorized to speak publicly. After the billionaire suggested over the weekend that Twitter turn its headquarters into a homeless shelter because “no one shows up anyway,” employees wondered how Mr. Musk would know given that he hasn’t visited the building in a while. They also pointed out that Mr. Musk, whose net worth is estimated at more than $ 270 billion, could easily afford to help the homeless in San Francisco himself.

Others said they were upset about Mr. Muska criticized the company’s product and business model, noting that he didn’t value the time and thought it had gone into an update to Twitter’s services over the years and he didn’t know about the product’s roadmap. Some employees said they were relieved to read that Mr. Musk will not join the board, people who have reviewed internal communication on Twitter claim.

When it still seemed that Mr. Musk to join the committee, Mr. Agrawal has scheduled a question and answer session for Mr. Muska to respond to employee concerns. The session was canceled, he said, familiar with the decision.

Pushing Mr. Muska is the second time in two years that Twitter has dealt with investor activist. Investment firm Elliott Management accumulated a 4 percent stake in 2020 and used its position to put pressure on change, including the removal of Jack Dorsey from the position of CEO and more aggressive financial growth. Mr. Dorsey resigned in November.

Eliot’s approach followed a typical formula for activist investors: acquire a significant stake in the company, then press for changes in management and strategy to increase the stock price.

“Usually the activist is very clear in his intentions,” said Rich Greenfield, an analyst at LightShed Ventures, a venture capital investment fund. But we don’t know what the real motivation of Elon Musk is. Is this Elon having fun? Is this Elon trying to influence change? Is this Elon trying to increase the share? ”

Twitter is particularly sensitive to activists, analysts say, because its founders did not structure the company’s shares in a way that gives itself more control. The founders of Google and Facebook have retained the power to vote on stocks, giving them tremendous control over the direction of their companies ’business.

Natasha Lamb, executive partner at Arjuna Capital, an activist investment firm that owns some shares of Twitter, said Mr. Musk had a more casual approach than other activist investors.

“Musk uses Twitter to hear his opinion, but it’s not a core activity,” she said. “That seems to be what he does for fun.”

What is fun for Mr. Muska may show less for Twitter. Relief among Twitter employees that he is no longer joining the board was short-lived, current and former employees said, when they realized he was no longer bound by an agreement not to buy more shares or take over the company.

Mr Musk could continue to play with Twitter, current and former employees said they understood. Several added that they feared what might follow.

Lauren Hirsch contributed to reporting.

Leave a Comment

Your email address will not be published.