Musk joins Twitter board in deal that prevents him from buying majority stake
2022 04 05
Elon Musk is joining Twitter’s board of directors in a deal that prohibits him from buying more than 14.9 percent of the company’s stock, Twitter announced today. The news of Musk joining the board comes one day after the Tesla and SpaceX CEO revealed that he had purchased 9.2 percent of Twitter shares.
Musk said he’s looking forward to helping Twitter make “significant improvements” and asked Twitter users in a poll if they want an edit button. After about 3.4 million votes, 73.4 percent of respondents had voted yes—or rather, they voted “yse” instead of “on” because Musk misspelled both options.
Twitter CEO Parag Agrawal suggested that Musk’s poll on an edit button might influence Twitter policy. “The consequences of this poll will be important. Please vote carefully,” Agrawal wrote in a retweet of the poll.
Though a potential downside of an edit button is that users could significantly change tweets that are going viral, Meta CTO Andrew Bosworth wrote, “We solved this on Facebook a long time ago. You just include an indicator that it has been edited along with a change log. If you are really worried about embeds, they can point to a specific revision in that history but with a link to the latest edit. Not a real issue.” Musk’s response to Bosworth said only that “Facebook gives me the willies.”
Musk’s deal with Twitter
Musk’s agreement to join the board prevents him from taking a controlling stake in Twitter. “For so long as Mr. Musk is serving on the Board and for 90 days thereafter, Mr. Musk will not, either alone or as a member of a group, become the beneficial owner of more than 14.9 percent of the Company’s common stock outstanding at such time, including for these purposes economic exposure through derivative securities, swaps, or hedging transactions,” Twitter wrote in a Securities and Exchange Commission filing submitted today.
That prevents a scenario mentioned by CFRA Research analyst Angelo Zino, who wrote on Monday that “Musk’s actual investment is a very small percentage of his wealth, and an all-out buyout should not be ruled out.” Musk is already Twitter’s largest shareholder with his 9.2 percent stake.
Musk’s term will last until Twitter’s 2024 annual shareholders’ meeting. This year’s meeting is on May 25.
Musk is being appointed as a Class II director. As Investopedia notes, classes are used on staggered boards of directors in which members serve terms of different lengths. “A stagger system acts as a defense against a hostile takeover because only part of the board of directors are put up for re-election in any one year,” the article says.
While the deal prevents Musk from taking outright control, he will gain influence over Twitter’s operation. As Bloomberg wrote yesterday, “Twitter is particularly vulnerable to outside pressure because unlike Google, Facebook, Amazon, and Snap, the company’s founders don’t have special voting control over its future.”
Musk isn’t officially on the board yet. Twitter’s SEC filing said Musk will join “as promptly as practicable” after going through the “customary onboarding procedures (including a customary background check) for members of the Board.”
Twitter CEO: Musk will “bring great value”
“I’m excited to share that we’re appointing @elonmusk to our board! Through conversations with Elon in recent weeks, it became clear to us that he would bring great value to our Board,” Agrawal wrote on Tuesday. Musk replied that he is “looking forward to working with Parag & Twitter board to make significant improvements to Twitter in coming months!”
Agrawal also wrote that Musk is “both a passionate believer and intense critic of the service which is exactly what we need on @Twitter, and in the boardroom, to make us stronger in the long-term.” Musk recently questioned Twitter’s commitment to “free speech” and has fought with the SEC over a 2018 settlement that requires Tesla to impose controls on his social media statements.
Twitter’s stock price rose 27 percent yesterday on the news of Musk’s investment. His 9.2 percent stake’s value increased from $2.89 billion on Friday to $3.67 billion on Monday. Twitter stock was up another 5 percent as of this writing.