Elon Musk offers to buy Twitter. Here’s what we know

In 10 days, Tesla CEO Elon Musk has gone from popular Twitter contributor and critic to the company’s largest individual shareholder to a future owner of the social platform – a whirlwind of activity that could change the service dramatically given the sometimes whimsical billionaire himself identification as absolute freedom of expression.

Twitter revealed in a securities archive on Thursday that Musk has offered to buy the company directly for more than $ 43 billion, saying the social media platform “needs to be transformed as a private company” to build trust with its users.

“I believe that freedom of speech is a societal necessity for a functioning democracy,” Musk said in the archive. “I now realize that the company will neither thrive nor serve this societal imperative in its present form.”

Later in the day, during an on-stage interview at the TED 2022 conference, he went even further: “Having a public platform that is maximally trusted and broadly inclusive is extremely important to the future of civilization.”

Since it hit the scene in 2006, Twitter has been home to thriving social and political comments, shared news, scandal gossip, cat memes and arguments about dress color. But it has also provided a platform for viral misinformation and lies, bullying and hate speech and gangs of trolls who can shout down posters they disagree with, triggering tidal waves of disgusting images, threats and similar acts of online aggression .

Twitter has made significant efforts to maintain the latter while preserving the former – though not always in ways that satisfy most users. Like other platforms, it has established restrictions on tweets that threaten violence, incite hatred, bully others and spread misinformation. Such rules drove 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 stronger content restrictions, and a megaphone for high-profile individuals like Trump and Musk who have used it to gather followers and promote business ventures.

Musk, who described Twitter as a “de facto town square,” detailed some specific potential changes Thursday – such as favoring temporary rather than permanent bans – but has mostly described his goal in broad and abstract terms.

He said he wanted to open the “black box” of artificial intelligence technology that drives Twitter’s feed so people would have more transparency about why some tweets might go viral and others disappear. “I would not personally be in there and edit tweets,” he said, “but you would know if anything was done to promote, demote or otherwise influence a tweet.”

The billionaire has been a vocal critic of Twitter, mostly because of his stated belief that it lacks free speech principles. The social media platform has angered supporters of Trump and other right-wing political figures, who have had their accounts suspended for violating its content standards for violence, hatred or harmful misinformation. Musk has described himself as an “absolute freedom of speech” but is also known for blocking other Twitter users who question or disagree with him.

While Twitter’s user base remains much smaller than that of rivals like Facebook and TikTok, the service is popular with celebrities, world leaders, journalists and intellectuals. Musk himself has more than 81 million followerscompeting pop stars like Lady Gaga.

The Twitter stock closed at $ 45.08, down just under 2%, well below Musk’s offer of $ 54.20 per share. This is generally a sign that some investors are doubtful that the trade will go through. The stock is still down from its 52-week high of around $ 73.

Musk called the award for his final offer, though he did not provide any details on funding. The offer is non-binding and subject to financing and other conditions.

Twitter said it will decide whether it is in the interest of shareholders to accept the offer. However, it is unclear how Twitter’s board will react after evaluating the offer. It will probably negotiate and seek a higher price per. share, or it might have provisions in place to ensure the board remains independent of Musk, said John Coffee, a professor at Columbia University School of Law and head of its corporate governance center.

The board could adopt “poison pill” provisions to offer more shares and dilute the value of Musk’s holdings if Musk’s stake grows to 10% or 15%, Coffee said. Even then, Musk could still take over the company with a proxy battle by voting out the current directors.

At the TED conference, Musk said he has the money. “I had technical advice for that,” he said with a laugh.

Should Musk go through with his takeover bid, he could probably raise the around $ 43 billion he needs, possibly by borrowing billions using his shares in Tesla and SpaceX as collateral.

Most of Musk’s fortune, estimated by Forbes at nearly $ 265 billion, is tied up in shares of Tesla. The company allows directors to use shares as collateral for loans, but limits the borrowing to 25% of the value of the pledged shares.

Data provider FactSet says Musk owns 172.6 million shares worth $ 176.47 billion. Just over 51% of his share has already been pledged as collateral, according to a Tesla proxy statement. That means Musk can use the remaining stake to borrow about $ 21.5 billion. He could also borrow from his stake in privately owned SpaceX.

Musk revealed in legislative documents in recent weeks that he had been buying Twitter shares in almost daily batches since January 31, ending with a stake of about 9%. Only Vanguard Group controls multiple Twitter shares. A lawsuit was filed Tuesday in New York’s federal court, Musk allegedly illegally postponed his stake in the social media company so he could buy more shares at lower prices.

The US Securities and Exchange Commission could punish Musk for harming other investors by taking too long to disclose his takeover of Twitter shares, but it is unlikely it will do anything to stop a takeover, said Chester Spatt, a former SEC chief economist.

“This is going to play out fairly quickly,” said Spatt, now a professor of finance at Carnegie Mellon University.

Jacob Frenkel, a former SEC enforcement attorney now at the Dickinson Wright law firm in Washington, said it is difficult to prove an investor’s intent in disclosure cases. “The mere fact of the violation surrounding the revelation does not mean that there was fraud,” Frenkel said.

But there is “plenty of feed for an investigation” into whether anyone with knowledge of Musk’s share purchase traded in the stock before Musk’s public revelations, Frenkel said.

After Musk announced his stake, Twitter quickly offered him a seat on the board of directors on the condition that he owns no more than 14.9% of the company’s outstanding shares. But the company said five days later that he had declined. The decision coincided with a barrage of now-deleted and not-always-serious tweets from Musk proposing major changes to the company, such as dropping ads – its main source of revenue – and turning its San Francisco headquarters into a homeless shelter.

The turnaround prompted CEO Parag Agrawal to warn employees earlier this week that “there will be distractions ahead” and to “muffle the noise and stay focused on the work.”

Twitter has not done as well as its social media rivals and lost money last year. The company reported a net loss of $ 221 million for 2021, which was largely linked to the settlement of a lawsuit from shareholders, which said the company was misleading investors about how much its user base was growing and how much users were interacting with its platform. . Its co-founder Jack Dorsey resigned as CEO in late November and was replaced by Agrawal.

“I’m not saying I have all the answers here, but I think we’ll just be very reluctant to delete things and just be very careful about permanent bans,” Musk said. “It will not be perfect,” he said, but there should be a perception and reality that speech is “as free as reasonably possible.”

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