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Twitter’s board handled Elon Musk well


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Gregory Bull / Associated Press

Let’s hear it on Twitter‘s

Board of Directors. Given the significant drama surrounding Elon Musk’s bid for the company, it’s easy to overlook the board’s skillful handling of his approach.

In early April, when Mr Musk initially revealed his purchase of just over 9% of the company’s shares, the board responded by offering him a seat. This elegant move recognized a major shareholder’s right to influence the company’s direction and would also have hindered Mr Musk’s ability to criticize the company publicly. That he ultimately rejected this offer does not mean that the board was unwise to offer it.

Next, when Mr. Musk announced its offer to buy the company at $ 54.20 per share, the board adopted a poison pill. This move was reasonable as he did not explain how he would finance his offer and it forced him to negotiate with the board instead of going directly to a takeover bid. Forcing a notorious mercury bidder with questionable financial capacity to handle the board of directors – which has the ability to negotiate contract terms that protect shareholders and others – was in line with its fiduciary responsibility.

Poison pills can be abused by irreconcilable boards to prevent hostile takeover bids that could be in the interest of shareholders. In Twitter’s case, the board could have justified its opposition to Mr Musk’s bid for a variety of reasons: his short-term disregard for advertising revenue, his useless aversion to content regulation, or a potential emigration of valuable employees.

However, Twitter’s board made it clear this week that it is not strictly against change. When Mr Musk revealed that he had secured financing for his offer, and after the board heard from his own financial advisers that his offer price was attractive from an economic point of view, the board approved the deal. However, it did so only after negotiating two key terms: a $ 1 billion breach fee – which would protect Twitter’s shareholders if Mr Musk goes out of business – and payments of employee stock subsidies – which are likely to be appreciated by Twitter employees who would otherwise have been left with illiquid shares in a private company whose owner might not prioritize profitability.

The boards of public companies have an important role to play in the crucial moments of a company’s life. There will be considerable uncertainty about Twitter’s future if Mr. Musk’s acquisitions close, but there is little doubt that Twitter’s board handled his approach skillfully, adding value to both the company’s shareholders and its employees.

Mr. Lefler is a partner emeritus at Los Angeles law firm Irell & Manella LLP.

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Published in print on April 28, 2022.

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