Elon Musk wanted to buy Twitter from the beginning, not just sit on its board or remain a large, silent shareholder, and he considered launching a competing service before abandoning the idea to focus on a buyout, according to new details about the proposed $44 billion transaction provided in an SEC filing.
The document, a proxy statement from Twitter’s board urging shareholders to approve Musk’s takeover, sheds light on Musk’s first pursuit: Musk sincerely desired to acquire Twitter! And he has been contemplating it for longer than we realized. As with so much else, the proxy’s revelations merely complicate the most recent state of affairs, with Musk perhaps not purchasing Twitter after all (despite having thought about it for a good while). He claims the sale is off until Twitter can verify its claims regarding spam and automated accounts, while Twitter argues the transaction should proceed at the agreed-upon price of $54.20 per share.
Let’s discuss what we’ve learned from the proxy. Musk met with Twitter’s CEO Parag Agrawal and chairman Bret Taylor on March 27 and informed them that he had amassed this significant holdings after acquiring a stake in the firm that would eventually exceed 9 percent. Moreover, he stated that he was considering a variety of possibilities for his next move, including launching a competing site, joining Twitter’s board, or acquiring Twitter altogether. Musk swiftly abandoned the concept for a competing app. (Smart. As President Trump has recently discovered, doing so is difficult.) Neither did he wish to join the board. A few days after accepting a directorship, he turned it down. In refusing the seat, he announced on Twitter that he planned to acquire the company. The remaining alternative is to acquire Twitter.
Prior to this, it was unknown when Musk decided to pursue an unsolicited takeover, but the proxy makes it clear how long he has been considering it. Externally, Twitter revealed little of what it knew about Musk’s intentions. Agrawal warned employees and shareholders of impending “distractions” in public comments about Musk and his resigning board position. (Distractions! (This appears to be an understatement when viewed through the perspective of hindsight.) Agrawal failed to note that Musk had notified him and Twitter’s board of his intentions to acquire the firm. Internally, however, the possibility of a Musk acquisition dominated the board’s attention and seemed to influence every aspect of its initial interactions with him, such as awarding him a board position and attempting to restrict the amount of Twitter shares he could continue to purchase.
In addition, the proxy informs us that Musk and Twitter co-founder Jack Dorsey have been close confidants throughout this ordeal, even closer than we’ve deduced from their tweets. They are pals! No, this is not an adorable exaggeration. In fact, the proxy says that. It appears on page 43: Mr. Dorsey informed the Twitter Board at a meeting on April 3 that he and Mr. Musk were friends. Throughout this process, their connection has been a source of complications for Twitter, with Dorsey publicly campaigning for Musk to private the firm and criticizing the board (on which he still sits) before the board voted to accept Musk’s offer. As it turns out, Dorsey was the first person Musk contacted regarding Twitter (on March 26), and in a separate call, Musk requested that Dorsey reverse his plans to quit the board in May. Dorsey declined and simultaneously advised Musk that Twitter would fare better as a private corporation. Musk told the board of his intention to private Twitter four days later.
To summarize, Musk and Dorsey are pals! Even though Musk’s involvement in Twitter hasn’t always appeared to be the best thing for Twitter, at least a portion of Musk’s interest in Twitter can be attributed to their friendship. We sort of knew this before the proxy, but the proxy really clarifies this.
Here are a few more fascinating details from the proxy, and then we’ll return to Tuesday morning’s other events:
Musk passed the background investigation! The Internet was rife with rumors that something may have occurred during Twitter’s check when it believed he was joining the board. Musk may have changed his mind about joining the board of directors due to a previously unreported SEC inquiry. Nope.
Twitter made little effort to get itself a so-called “white knight.” The Twitter board met with Goldman Sachs bankers on April 14, a day after Musk publicly announced his intention to acquire Twitter, and opted not to investigate “strategic alternatives” to a Musk sale. (They imply, “Find us another buyer with whom we can coexist more comfortably.” Alternatively, a white knight.) Why didn’t Twitter solicit other offers formally? The bankers and board determined, in a bleak assessment of Twitter’s business prospects, that “other parties were unlikely to have the interest or ability to buy Twitter.” Thus, no one other than Musk is currently interested in purchasing Twitter.
Prior to Musk’s arrival, Twitter was already aware that it would not reach its revenue goal of $7.5 billion by 2023. The company’s internal forecasts predicted a revenue of $7.2 billion, which would represent tremendous expansion from the $5.9 billion in 2021. Twitter expects revenue to increase from $9 billion in 2025 to $12.9 billion in 2025. (2027). Musk has apparently presented significantly more ambitious objectives to potential co-investors in the deal. The New York Times reports that he believes he can increase Twitter’s revenue to $28 billion by 2028, with $12 billion coming from advertising revenues and $10 billion from subscription goods. Currently, practically all of Twitter’s revenue comes from advertisements.
Given how it’s positioned, you can’t help but laugh at the proxy’s concluding statement. In the section of the document labeled “Recommendation of the Twitter Board and Reasons for the Merger,” the board explains why it believes shareholders should support the merger. Among these include Twitter’s previous problems to simultaneously develop users and revenue, the bankers’ assessment that $54.20 is a fair price, the absence of interest from any other parties, and a decent possibility of the transaction going through. The board of Twitter’s judgment that an acquisition by Mr. Musk has a good chance of closing.”
It’s amusing to see “reasonable possibility of consummation” written out because, well, the deal seems significantly less likely to close today than it did a week ago. At least $54.20 per share And now we return to the most recent occurrences.
Several hours before to Twitter’s posting of its proxy statement on Tuesday morning, Elon Musk stated that the purchase cannot be finalized until the firm provides proof that less than 5 percent of Twitter accounts are spam. Musk has made combating spam – bot accounts — one of his favorite talking points, and on Friday he announced he was halting the transaction until he further reviewed the company’s spam estimates, which have been provided in SEC filings for years.
Musk stated at a technology conference on Monday that he believed the percentage to be as high as 20 percent. Agrawal published a lengthy Twitter thread on Monday describing the company’s operations against bots and reiterating that the percentage was below 5 percent. Musk responded to Agrawal’s remarks with an emoji of a feces.
Musk, who has been contemplating buying or competing with Twitter for as long as we’ve known him, may have changed his mind about purchasing Twitter. He appears to be using bots as a pretext for walking away from the deal, despite the fact that he would be liable for a $1 billion breakup fee if both parties agree to terminate the agreement, or as a pretext to force Twitter to renegotiate the $54.20 share price in light of the recent drop in tech stocks.
Twitter might pick neither of these options and instead drag Musk into court to compel him to honor the contractual agreement he made with the board to acquire the firm. If the board believed $54.20 a share was a good price in April, it looks even better in May given the industry-wide decline in share prices. In a news announcement regarding the proxy, the firm stated, “Twitter is committed to concluding the deal at the agreed-upon price and terms as quickly as is practically possible.”
Investors in Twitter are not excited about the current situation. After plunging about 7 percent on Monday, the stock fell a further 0.6% in Tuesday’s early trading. The widening difference between the share price and Musk’s offer, which was only a few dollars a few weeks ago, indicates investors’ growing concern that the merger would not go through.
It is all quite ironic. A few weeks ago, Musk tried to accomplish this, but Twitter did not. Now, a cold-footed Musk appears less interested, but Twitter is determined to get the job done. Why? The reason was explicitly stated in the proxy: “If the merger is not completed, and depending on the reasons that cause it not to be completed, the price of our common stock may decrease significantly.”