Twitter gives Elon Musk a bitter pill to swallow

Tesla boss, space-travel innovator, professional loudmouth and the world’s richest man: Elon Musk wears many hats. But his desire to also become a 21st-century media baron has required him to assume the mantle of a 20th-century corporate raider as he launched a $43bn hostile takeover of Twitter, days after he reversed course on accepting a board seat. In an equally retrograde step, the social media platform responded last week with a so-called poison pill. This is the nuclear option: an effective but ultimately unpalatable defence.

Poison pills hark back to an era of 1980s’ buccaneering acquisitions that transformed boardrooms across the US, and not always with warm welcomes. Formally known as shareholder rights plans, they involve a company offering existing investors (apart from a hostile bidder) the option of buying additional shares at a discount if a particular event is triggered — normally if an investor surpasses a shareholding threshold. The effect is to massively dilute the value of each share, including the stake of the hostile bidder. Triggering the device makes it essentially impossible for a raider to gain control of the company.

The share plans have enjoyed a renaissance. Nearly 100 US companies implemented them in 2020 as they feared that valuations depressed by the pandemic made them vulnerable to raids. But their effectiveness at initially seeing off hostile bidders comes at a bigger price to corporate governance. Countries including the UK do not permit poison pills because of fears that they can entrench management rather than force boards to meaningfully engage with bidders who could transform companies for the better.

Whether Musk can do that is the bigger question. Faced with a year-long poison pill that will be administered if he buys more than 15 per cent of Twitter — he currently holds 9 per cent — his options are limited. He could try to persuade big investors to oust and replace board members, which takes time, or he could appeal directly to shareholders through a tender offer, which takes money. A cryptic tweet by Musk suggests he favours the latter. That puts a focus, not for the first time, on whether Musk can actually afford to take a company private. The world’s richest man is cash poor. Much of his wealth is tied up in Tesla stock, with limits on how much he can pledge as collateral for a loan at any one time.

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Traditional lenders are wary: Musk has a rocky relationship with at least one big bank and the US securities regulator. Some private equity firms, considering whether to chip in, are reportedly put off by Twitter’s meagre profits. Musk, hardly the first billionaire to understand the influence a media platform can bring, is attracted less by its moneymaking ability than by its wider importance. His ideas for opening up the algorithm behind the feed that users see, and rolling back content moderation, may not help the bottom line: advertisers are unlikely to be drawn to a site that accommodates hate speech and misinformation.

Befitting Twitter, and one of its loudest voices, this takeover battle so far is about posturing. No poison pill has ever been wilfully triggered. Musk’s financing, as well as his real intent, remains elusive. He has made grand claims about overhauling the platform to safeguard civilisation. But a venture as important to social discourse as Twitter, taken from the scrutiny of public markets by one of the platform’s most controversial users with vast business interests, is an unwelcome prospect in a world without wider rules around social media ownership. A shame Twitter has no dislike button.

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