Elon Musk joins Twitter board raising questions about the company’s plans

BRITTA PEDERSEN | AFP | beautiful pictures

Twitter said on Tuesday that Elon Musk is join its board. One day before, TeslaThe CEO and richest person in the world revealed that he is the largest shareholder of the social media company.

In addition to being the latest Silicon Valley drama, investors are trying to figure out what it means.

Shares of Twitter rose 4% on Tuesday following the board’s announcement. On Mondays, it has best day Since the company’s IPO in 2013, it has skyrocketed more than 27%. When it comes to Musk, the market is rarely rational.

Howard Fischer, a partner at the New York law firm Moses & Singer and a former attorney at the Securities and Exchange Commission, said: “It’s great when a company reports profits – it looks so much better. if a company reports its relationship with Elon Musk. . “He may not improve operations, he may not improve revenue, he may not reduce liabilities, but the stock market rewards [Twitter]. ”

Whatever the financial impact may or may not be, one thing is clear. It seems that overnight, Musk has gained greater influence over a company for which he is frequently criticized and a platform for which he has 80 million followers, including many dedicated members. the heart of the Elon sect.

Musk’s intentions with Twitter are unclear, and that could be by design.

In the past, he has outlined Twitter’s content moderation policies, arguing that the company has failed to uphold free speech principles. He also pushed Twitter to create an edit button (a common complaint on the Twittersphere) and allow users to have greater control over the tweets they see in their news feed.

Youssef Squali, an analyst from Truist Securities, said: “I suspect he will start relatively slowly but then he will want to make some serious changes, possibly in the liberal direction. speech”. “I don’t think he’s ultimately concerned with user growth, etc.”

Twitter CEO Parag Agrawal and Co-Founder Jack Dorsey both welcomed Musk to the company’s board.

“He’s both an avid believer and a fierce critic of the service, which is exactly what we need on Twitter and on the board, to make us stronger in the long-term,” Agrawal said. tweeted. “Welcome Elon!”

Musk disclosed his ownership of Twitter shares through a 13G form with the SEC. That suggests it’s a passive concern, which usually means that the holder is not trying to control or influence the company.

But that is now. In the future, Musk may choose to pursue an active stake and a more active role in the company. If he does, he will have to disclose it to the SEC with a 13D form. In that case, he would have to outline his intentions.

“Stocks can go live at any time,” said Tom Hayes, president of Great Hill Capital. “I think Twitter is taking the initiative by putting him on the board before he asks for it.”

Twitter set some parameters for Musk’s appointment to the board, potentially limiting his influence. The filing said, as long as Musk serves on Twitter’s board, or 90 days later, he cannot own more than 14.9% of Twitter’s shares, either as an individual or as a member of a group. Musk will hold the position of Class II director until 2024.

“I think they’re setting that condition because they don’t want to [Musk] Hayes said.

Twitter is no stranger to activist investors. In 2020, the company reach an agreement with Elliott Management after the hedge fund pushed to oust Dorsey as the company’s CEO. The deal includes a $1 billion investment from private equity firm Silver Lake, and gives both Silver Lake and Elliott a seat on Twitter’s board.

Prakash Singh | AFP | beautiful pictures

Wall Street analysts have begun speculating about what Musk might have on Twitter. Buy more active share? More board seats? What about a full buyback?

“Use your imagination,” wrote Gordon Haskett analyst Don Bilson in a note to clients on Monday. We’ll have to wait and see “whether Dorsey likes the idea of ​​Musk buying Twitter like Jeff Bezos bought the Washington Post. “

Hayes said he thinks it’s unlikely Musk will pursue something as dramatic as a handshake or a private takeover.

“He currently has a significant financial stake in the company,” Hayes said, adding that there’s no reason Musk would want to take over the company as long as Twitter “implements his idea.”

Musk can still instigate changes to company policies. Last month, he polled his Twitter followers on whether the company is “strictly compliant” with freedom of expression.

“Given that Twitter serves as a de facto public town square, failure to adhere to free speech principles fundamentally undermines democracy,” Musk wrote on Twitter. “Should do what?”

Musk, who is known to often attack journalists and others who criticize him and his company, has an ambiguous definition of free speech. He accused the Securities and Exchange Commission of harassment in a a calculated attempt to “chill” his freedom of speech in it monitor his communications to shareholders after a 2018 tweet showed he had secured funding to take the company private.

If Musk remains true to his word about free speech, Squali said, any drastic changes to Twitter in his image would create a much more controversial platform. Controversy tends to attract consumers, he said, but repel advertisers, something boards should be wary of.

Twitter argues that Musk and other members of the board do not have the authority to set company policies.

“Our policy decisions are not dictated by the board of directors or shareholders,” a Twitter spokesperson told CNBC in a statement.

The spokesperson added that Twitter’s board plays an important role in providing guidance and feedback “across our entire service,” but that day-to-day operations and decisions are made. by Twitter employees and employees.

It remains unclear how Musk will join the board. In addition to leading Tesla, Musk is also the CEO of rocket company SpaceX and Neuralink, a company that aims to develop implantable brain chips.

Fischer said Twitter management should be worried about Musk drawing the ire of the SEC, pointing to his apparently public disputes with the agency. Musk has a history of controversy and promote its companies on Twitter, while refuting some of the SEC’s rules.

“If I were Twitter, I would worry about him getting the attention of the SEC,” Fischer said.

Musk did not immediately respond to a request for comment from CNBC.

WATCH: Jim Cramer said Elon Musk is a ‘trojan horse’ on Twitter

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