Elon Musk wants to buy Twitter to make it "trusted to the maximum extent possible"
Within 10 days, Tesla CEO Elon Musk went from popular Twitter writer and critic to the company's largest individual shareholder, a potential owner of social platforms.
Twitter revealed in a securities filing on Thursday that Musk has offered to buy the company directly for more than $43 billion, saying the social media platform "needs to transform into a private company" in order to build trust with users.
Musk said in the document: "I believe that freedom of speech is a social demand for democratic operation. "I realize now that companies are neither going to flourish nor serve this social need in their current form."
Later that day, in an interview on the stage of the TED 2022 conference, he said more broadly: "Having a public platform with maximum trust and broad inclusion is extremely important for the future of civilization." ”
Since its inception in 2006, Twitter has been the birthplace of thriving social and political commentary, shared news, scandalous gossip, cat memes, and dress color debates. But it also provides a platform for viral misinformation and lies, bullying and hate speech, and troll gangs that can shout out posters they disagree with by releasing massive malicious images, threats, and similar online aggression.
Twitter puts a lot of effort into blocking the latter while retaining the former — though not always in a way that satisfies most users. Like other platforms, it has established restrictions on tweets that threaten violence, incite hatred, bully others, and spread misinformation. Such rules prompted Twitter's decision to ban former President Donald Trump after the 2021 Capitol uprising.
Twitter has also become a destination for brands and advertisers, many of whom prefer stricter content restrictions, as well as a megaphone for prominent figures like Trump and Musk, who use it to rally supporters and promote business investment.
Musk described Twitter as a "de facto town square" and on Thursday detailed some specific potential changes — such as supporting a temporary ban over a permanent one — but he mostly described his goals in broad and abstract terms.
He said he wants to open the "black box" of the AI technology that drives Twitter's flow of information so people can be more transparent about why some tweets might go viral and others might disappear. "I personally wouldn't edit a Tweet there," he said, "but you'll know if something was done to elevate, downgrade, or otherwise influence a Tweet." ”
The billionaire has been an outspoken critic of Twitter, largely because he believes it doesn't fit the principles of free speech. The social media platform has angered followers of Trump and other right-wing politicians whose accounts have been suspended for violating their content standards on violence, hatred or harmful misinformation. Musk describes himself as an "absolutist of free speech," but is also known for discouraging other Twitter users who question or disagree with him.
While Twitter's user base is still much smaller than that of competitors like Facebook and TikTok, the service is popular with celebrities, world leaders, journalists and intellectuals. Musk himself has more than 81 million followers, rivaling pop stars like Lady Gaga.
Twitter shares closed at $45.08, down just under 2 percent, well below Musk's $54.20 per share quote. This usually indicates that some investors are skeptical that the deal will succeed. The stock remains below a 52-week high of $73.
Musk called the price his final offer, though he didn't provide details of the financing. The Offer is non-binding and subject to financing and other conditions.
Twitter said it would decide whether it would be in the best interests of shareholders to accept the offer. However, it is unclear how Twitter's board will react after evaluating the offer. John Coffee, a professor at Columbia Law School and head of the Center for Corporate Governance, said it could negotiate for a higher price per share, or it might need terms to ensure the board remains independent of Musk.
If Musk's stake increases to 10 or 15 percent, the board may adopt "poison pill" clauses to offer more shares and dilute the value of Musk's shares. Even so, Musk can still take over the company by voting for incumbent directors and through a proxy battle.
At the TED conference, Musk said he had money. "Technically, I can afford it," he said with a laugh.
If Musk goes through his acquisition attempt, he could raise about $43 billion he needs, possibly borrowing billions of dollars by using his stakes in Tesla and SpaceX as collateral.
According to Forbes estimates, most of Musk's wealth is close to $265 billion, pegged to Tesla's stock. The company allows the executive to use the stock as collateral for the loan, but limits the borrowing to 25% of the value of the pledged stock.
Data provider FactSet says Musk owns 172.6 million shares worth $176.47 billion. According to Tesla's agent statement, more than 51% of his shares have been pledged as collateral. That means Musk can borrow about $21.5 billion with the remaining stake. He can also borrow a privately held stake in SpaceX.
Musk revealed in regulatory filings filed in recent weeks that since Jan. 31, he has been buying Twitter stock in batches almost every day, ending up holding about 9 percent of the shares. Only Vanguard Group controls more Twitter shares. The lawsuit filed Tuesday in federal court in New York accuses Musk of illegally delaying the disclosure of his stake in the social media company so he could buy more shares at a lower price.
Chester Spat, a former chief economist at the U.S. Securities and Exchange Commission (SEC), said the SEC could punish Musk because it took him too long to disclose his purchase of Twitter stock, hurting other investors, but it is unlikely to do anything to block the acquisition.
"It's going to play out very quickly," said Spart, now a professor of finance at Carnegie Mellon University.
Jacob Frenkel, a former SEC enforcement lawyer now at Dickinson Wright Law Firm in Washington, said it is difficult to prove investor intent in disclosure cases. Frenkel said: "Merely involving the disclosure of the facts of the breach does not mean that there was fraud. ”
However, Frenkel said there was "a great deal of investigative information" about whether anyone in the know had bought Musk stock before Musk publicly disclosed it.
After Musk announced his stake, Twitter quickly offered him a board seat, provided that he held no more than 14.9% of the company's outstanding shares. But the company said five days later he refused. The decision coincided with a spate of now-deleted and not always serious tweets by Musk proposing major changes to the company, such as abandoning advertising — its main source of revenue — and transforming its San Francisco headquarters into a homeless shelter.
The shift led CEO Parag Agravar earlier this week to warn employees that "there will be distractions ahead" and to "bring out the noise and focus on work."
Twitter didn't fare as well as its social media rivals and lost money last year. The company reported a net loss of $221 million in 2021, largely related to the settlement of shareholder lawsuits, which shareholders said misled investors about the extent to which its user base had grown and the extent to which users interacted with its platform. Its co-founder, Jack Dorsey, resigned as CEO at the end of November and was replaced by Agrawal.
Musk said: "I'm not saying I have all the answers here, but I do think we want to be very reluctant to remove content and be very cautious about a permanent ban. "It's not going to be perfect," he said, but there should be an idea and reality that speech is "as free as possible."