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Morning Memo

The Twittering classes: Elon Musk's $43 billion bid and Twitter's 'poison pill'

Twitter co-founder and board member Jack Dorsey has signalled his unhappiness with the board’s handling of the situation.

This is an extract from today’s edition of Morning Memo, The Journal’s daily business newsletter, which puts the biggest business and economics stories of the day into context for readers. We also include a reading list of some of the more interesting business and economics-tinged stories from around the internet. Find out more and sign up here or at the bottom of the page. 

CONSPIRACY THEORIES ABOUND about what’s really motivating Elon Musk’s $43 (€39.8) billion bid to take Twitter private. But the facts of the matter are this: the Tesla chief executive, who has recently built up a large 9.2% stake in the social media giant, has made an offer that represents a significant premium for stockholders over the company’s average share price this year.

That offer, however, has so far failed to tempt Twitter’s board.In fact, despite releasing a public statement to the effect that it will carefully review Musk’s mega-bucks proposal, “all signs point to nearly everyone hating it“, as the team at tech news site Protocol put it last week.

That may be, as some believe, because Musk’s offer isn’t a serious one or because it undervalues the company. Under Musk’s plan, shareholders would be paid around $54.20 (€50) per share, about 16% more than Twitter’s average share price over the first four and a half months of 2022. But the fact that Twitter’s shares were trading above $60 (€55.60) for much of 2021 after reaching an all-time high of $77 (€70) per share in February of last year might explain the board’s reticence. There are others — including one former chairman of the US Securities and Exchange Commission (SEC) — who believe Twitter’s directors would be nuts not to take Musk’s offer more seriously.

Meanwhile, Jack Dorsey, the social media giant’s co-founder and former chief executive, sent some strong signals over the weekend that he’s unhappy with the board’s handling of the situation. He owns just over 2% of Twitter. Dorsey also holds a board seat at the moment, which he plans to vacate next month. But in a series of tweets over Easter weekend, the former Twitter chief seemed to hit out at his fellow board members.

Responding to one tweet about previous “plots and coups” at the board level, Dorsey said they have “consistently been the dysfunction of the company” he co-founded. Replying to a different tweet that quoted a “Silicon Valley proverb… Good boards don’t create good companies, but a bad board will kill a company every time”, Dorsey wrote “big facts”.

Musk, for his part, is using Dorsey’s impending exit as evidence that the board does not have the “economic interests” of its shareholders at heart. On Saturday, he tweeted that with Dorsey’s departure, “the Twitter board collectively owns almost no shares!” That’s objectively true. It’s also very common among “large-cap tech companies”, according to Nicholas Jasinki’s recent analysis for Barron’s. Twitter’s board collectively owns about 2.6% of the company, the lion’s share of which belongs to Dorsey at the moment. “Musk raised a fair point with his tweet,” Jasinski wrote over the weekend, “but one that is applicable to most major tech companies on the market, not just Twitter.”

Whatever the reason for their aversion to Musk’s overtures, Twitter’s directors are now stalling for time amid reports that other parties may be interested in tabling a bid. Twitter filed documents with the SEC yesterday, setting out a so-called ‘poison pill’ defence to stop Musk from accumulating more shares.

Essentially, it means that if the SpaceX boss were to boost his just over 9% stake in Twitter to 15% without board approval, the company would give all of its shareholders except Musk the opportunity to buy more shares at a discount. This would dilute the value of Musk’s existing stake and make it more expensive for him to buy the company.

With investors now smacking their lips at the prospect of an even tastier bid from another party to take Twitter private, the company’s share price has climbed over 7% in the past 24 hours.

Tesla investors, meanwhile, may have cause for concern if Twitter becomes another “distraction” for Musk, writes Paul R LaMonica for CNN. The electric car-maker “can ill-afford any more issues that keep Musk from focusing on” it amid a deluge of recent high-level management departures.

Separately, the company is potentially facing headwinds on the PR front with US authorities opening two formal defect investigations into safety issues around Tesla’s autopilot feature after a number of alleged traffic incidents. With Tesla set to publish earnings tomorrow and everything else that’s going on at the moment, expect both companies to dominate the headlines this week.

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