The CEO of Tesla and SpaceX is behind the rumble of a remarkably different company: Twitter.
Elon Musk is worth $273 billion – the richest man on the planet – recently attempted to take over the social media platform. Although he already holds more than 9% of capital in the company, he made a $43 billion bid to take over Twitter, or $54.20 per share.
“I now realize that the business will not thrive or serve this societal imperative in its current form,” Musk wrote in a letter to Twitter Chairman Bret Taylor. Indeed, according to the New York Times, he justifies his actions as supporting free speech: “A social media platform’s policies are good if the most extreme 10% on the left and right are equally unhappy “. tweeted tuesday.
For years, Musk has had a special reputation for his use of Twitter, with his tweets having the power to change market trends and temporarily recovery companies. For example, he helped fuel the GameStop stock craze last year, simply by tweeting, “Gamestonk!”
Elon Musk, the richest man in the world, uses Twitter to help his followers make a quick buck. Giving market-moving shoutouts to popular stocks and cryptocurrencies like GameStop, Bitcoin and Dogecoin, the Tesla and SpaceX CEO is showing his influence and power as he flexes his social media muscles.
But, as Time Magazine argued, taking over an entire company can be a different ball game — beyond the scope of his influence and not a serious business. Still, regardless of the outcome, the Musk-Twitter dispute gives reason to take a closer look at hostile takeovers.
Tenders, hostile objectives
A hostile takeover is an acquisition attempted against the wishes of the company’s current management and, as one might assume, is not a conflict-free transaction.
In 1994, such an attempt happened a little closer to home. At an event the Washington Post later dubbed the “Shenandoah Valley chicken warTyson Foods Inc. attempted to acquire WLR Foods Inc. for $30 per share.
In the cases of Tyson and Musk, the strategy of buying stock from shareholders at a price above its value is known as a “takeover bid”. To some, Musk hinted that he might try this approach, tweeting cryptically”love me tenderly” the Saturday.
However, Virginia law made this difficult in 1994. The Post succinctly summarized the law: “When outsiders attempt to gain control of a Virginia corporation and insiders try to keep them out, shareholders “disinterested” who are caught in the middle decide the decision. competition.”
Six million shareholders voted against giving management power to Tyson, abandoning the takeover bid. Tyson would go on to unsuccessfully challenge state legalization in court.
Such Virginia Codes are not unusual, fitting rather comfortably into the regulatory strategies that have evolved nationally. According to a study by the Securities and Exchange Commission, this type of legislation has led to a decline in hostile takeovers in recent decades.
In addition to giving power to disinterested voters, other Virginia laws limited hostile takeovers by giving threatened companies the ability to dilute voting power – by creating more shares, the so-called poison pill strategy – and, in the event of a takeover, by restricting dealings with buyer for three years.
While similar regulation is meant to protect economic development, that doesn’t mean bindings are gone. For example, despite rebuffing Tyson’s previous attempt to take him over, WLR was bought out by a Texas-based company. six years later for $14.25 per share – although this is a friendly buyout.
Agriculture is the backbone of the Shenandoah Valley and its economy. However, in recent decades, the agricultural landscape has changed, creating a divide between large and small farms.
A slight increase in consolidation may actually increase due to COVID-19. A number of sources point out just that: given the damaging nature of the pandemic, many companies have become weaker while others took advantage, creating an environment conducive to mergers and hostile bids.
According to data from Statisticalmergers and acquisitions have exploded globally, from 50,871 to 63,215 between 2020 and 2021.
Whether that’s good or bad is up for debate. A 1984 Harvard Business Review article titled “Takeovers: folklore and scienceunderlines the need to redirect society’s gaze on acquisitions. From his perspective — made 40 years ago — mergers and acquisitions act to eradicate inefficient businesses and create productivity synergy. Shareholders are unharmed but can potentially prosper through a better run business.
The poison pill
Whether or not Musk has any cost-effective changes in mind for Twitter — he’s suggested adding an edit button to tweets, among other things — is also up for debate. However, it would still need to acquire the business to do so.
In mid-April, Twitter responded to its takeover bid by continuing with the poison pill strategy. This means that the company offers “existing shareholders the opportunity to buy more shares at a lower price, effectively diluting the participation of a hostile new party,” according to The Economic Times. This makes it more expensive to buy enough shares to claim ownership of the company, even for a billionaire.
Such a measure should not necessarily be unavoidable because it can be detrimental to current shareholders who are not involved in the takeover. As Business Insider discovered, Florida’s state pension fund accounts for nearly 950,000 shares on Twitter, prompting Governor Ron DeSantis to criticize the strategy of Twitter.
Still, it’s a strategy that works. According to the New York Times, netflix survived a takeover bid in 2012 using the same strategy, and Men’s Wearhouse did the same a year later. Since its invention, it is assumed that most companies have implemented a poison pill rule, discouraging hostile takeovers.
In recent times, however, the practice has come under attack as a way for company management to protect themselves against “shareholder activism”, or an attempt by shareholders to obtain the right to vote to improve company policy. ‘business.
For now, Musk is pushing ahead with his goal of buying Twitter, working to raise the funds through debt financing. Otherwise, when looking for clues in his next approach, his tweets are a good place to start.
Contact Filip De Mott at [email protected] He specializes in media arts, design and international affairs.