Twitter announced on Tuesday that Elon Musk is on his board. A day earlier, Tesla CEO and the richest man in the world revealed that he is the largest shareholder of the social networking company.
Beyond becoming the latest Silicon Valley drama, investors are trying to figure out what all this means for Twitter.
Twitter’s share rose 4% on Tuesday after the announcement of the board. Monday had its best day since the company’s IPO in 2013, jumping over 27%. But when it comes to Musk, shopping is rarely rational.
“It’s nice when a company is reporting profits – it looks a lot better if a company is reporting on its relationship with Elon Musk,” said Howard Fischer, a fellow at New York-based law firm Moses & Singer and a former Securities and Exchange Commission lawyer. . “[Musk] it may not improve operations, it may not improve revenue, it may not reduce liabilities, but the stock market rewards [Twitter]. ”
Whatever the financial impact or not, one thing is clear: Apparently overnight, Musk has gained more influence in a company that is systematically criticized and used to tweet to some 80 million followers, including many of its loyal members. worship of Elon.
Musk’s intent with Twitter is unclear, and this is probably due to the design.
He had previously cited Twitter’s content control policies, claiming the company had failed to uphold the principles of free speech. Tesla CEO also pushed Twitter to create an edit button (a common complaint in the Twitter realm) and allow users to have more control over the tweets they see in their news feed.
“My suspicion is that it will start relatively late, but then it will want to make some serious changes, probably more in the direction of freedom of speech,” said Youssef Squali, an analyst at Truist Securities, which proposes buying the shares on Twitter. “I do not think he is ultimately interested in user development, etc.”
Twitter CEO Parag Agrawal and co-founder Jack Dorsey welcomed Musk to the company’s board of directors.
“He is also a passionate loyal and strong critic of the service, which is exactly what we need on Twitter and in the conference room to make us stronger in the long run,” Agrawal wrote. “Welcome Elon!”
Musk revealed his ownership of Twitter shares through a 13G form with the SEC. This shows that it is a passive interest, which often means that the holder is not trying to control or influence the company.
But that could change. In the future, Musk could choose to pursue an active share and a more aggressive role in the company. If it does, it will have to disclose it to the Hellenic Capital Market Commission in 13D format. In this case, he would have to state his intentions.
“Betting could be active at any time,” said Tom Hayes, president of Great Hill Capital. “I think Twitter is cautious by putting him on the board before he demands it.”
The social networking company has set some parameters for Musk’s appointment to the board, possibly limiting his influence. As long as Musk serves on Twitter’s board, or 90 days later, he can not hold more than 14.9% of Twitter shares, either as an individual or as a member of a team, the statement said. Musk will serve as a Class II manager until 2024.
“I think they set this condition because they do not want to [Musk] to have unlimited control over the company, “Hayes said.
Twitter is no stranger to activist investors. In 2020, the company entered into an agreement with Elliott Management, after the hedge fund pushed for the removal of Dorsey as CEO of the company. The deal involved a $ 1 billion investment by private equity firm Silver Lake and rewarded both Silver Lake and Elliott with Twitter board seats.
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Wall Street analysts have already begun speculating about what Musk might have in store for Twitter. More aggressive stock markets? More seats on the board? What about a full redemption?
“Use your imagination,” Gordon Haskett analyst Don Bilson wrote in a note to customers Monday. We have to wait and see “whether Dorsey will like Musk’s idea of buying Twitter just like Jeff Bezos bought the Washington Post,” he said.
Hayes said he thought it was unlikely Musk would pursue something as dramatic as a coup or a private takeover.
“It now has a significant financial stake in the company,” Hayes said, adding that there was no reason why Musk would want to take over the company as long as Twitter was “carrying out its ideas.”
Musk could even mobilize for a change in company policies. Last month, he polled his followers on Twitter about whether the company “strictly” adheres to freedom of speech.
“As Twitter operates as the city’s de facto public square, failure to uphold the principles of freedom of speech fundamentally undermines democracy,” he wrote on Twitter. “What needs to be done?”
Musk, who is known to attack journalists and others who criticize him and his company, has a vague definition of freedom of speech. He also accused the Hellenic Capital Market Commission of harassment in a calculated attempt to “freeze” his right to freedom of speech while overseeing his communications with shareholders following a 2018 tweet saying he had secured funding to privatize the company.
If Musk stays true to his freedom of speech, any drastic changes to his Twitter image would likely create a much more controversial platform, Squali said. Controversy tends to attract consumers but repel advertisers, something the board should be careful about, he said.
Twitter suggested that Musk and other board members have no authority to set company policies. “Our political decisions are not determined by the board or the shareholders,” a Twitter spokesman told CNBC in a statement.
The spokesman added that the company’s board of directors plays an important role in providing guidance and feedback “throughout our service”, but that day-to-day operations and decisions are made by Twitter executives and employees.
It is also unclear how much Musk will be on the board. In addition to leading Tesla, Musk is also the CEO of SpaceX rocket company and Neuralink, a company that aims to develop implantable brain chips.
Fischer, a former SEC lawyer, said Twitter’s management should be concerned that Musk had angered the financial regulator by pointing out his well-publicized disagreements with the agency. Musk has a history of flirting with controversies and promoting his companies on Twitter, while rejecting some SEC rules.
“If I were on Twitter, I would be worried if it drew the SEC’s attention,” Fischer said.
Musk did not immediately respond to a request for comment from CNBC.
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