Twitter shareholders voted Wednesday against re-electing board member Egon Durban.
Durban, a private equity executive, is a longtime business associate of Elon Musk.
Regardless of your opinion of Twitter, Musk, or this deal, this is a rather rare occurrence when there is a successful vote to recommend the termination board member - and a move that should be welcomed on the macro stage as a sign that “owners” of a company can still influence management - or call for their removal.
Are shareholders willing to take the financial hit to keep Musk out?
This may not be about keeping Musk out. It might signal their commitment to aggressively hold him to the $54.20 deal - or at least to have some very sharp elbows if/when he tries to renegotiate it to a lower offer price.
It was worth MORE before this buyout, more before Musk started to buy it. On Jan 3rd it closed at $42 a share, as I type this, it is trading at $39 a share. Could it go to $20? I guess, sure, but it hasn’t traded that low in 5 years - so what do you think it is worth?
If you are a shareholder that now accepts that Musk is trying to push the deal lower, then you don’t have a lot of incentive to see this deal succeed. Less than a year ago, Twitter was trading over $60.
Of course, that analysis is all quantitative and not qualitative. It doesn’t include how you actually may feel about twitter being run by a guy that has no hesitation calling other people a pedophile if he disagrees with you. There is probably a significant “goodwill” premium associated with the cost of the change of management.
ISS, an influential research firm that recommends how shareholders vote at annual meetings, had recommended a vote against Durban, who serves on the boards of more than five publicly traded companies (it lists seven including Twitter, Endeavor among them). ISS calls that being “overboarded.”
May not have anything to do with the pending deal; or that just might be cover. Would have to compare such to their previous “against” recommendations- or their “for” recommendations where someone is otherwise overboarded.
Are shareholders willing to take the financial hit to keep Musk out?>>
This may not be about keeping Musk out. It might signal their commitment to aggressively hold him to the $54.20 deal - or at least to have some very sharp elbows if/when he tries to renegotiate it to a lower offer price.
That makes no sense. How does kicking a Musk ally off the board make it more likely that the deal is consummated?
Musk can fund a lot of expensive litigation with the difference between $54.20/share and $20.
It was worth MORE before this buyout, more before Musk started to buy it. On Jan 3rd it closed at $42 a share, as I type this, it is trading at $39 a share. Could it go to $20? I guess, sure, but it hasn’t traded that low in 5 years - so what do you think it is worth?
I don’t know. $2 maybe? Twitter has a P/E of 162. Thing is, Twitter is growing fast, but not particularly fast and it isn’t particularly good at making money. Personally, I wouldn’t buy it at all. Just like Facebook, Twitter has a ceiling of the number of users. Facebook hit their ceiling. Current P/E is 15. Also compare with GOOG which has a P/E of 20, is growing fast, and is great at making money. Twitter at this price is a crap investment. Of course the board wants to sell at $54. It’s not worth that much.
Musk kind of reminds of Henry Ford. Ford had some amazing, unprecedented accomplishments, but he was also a loon.
<<That makes no sense. How does kicking a Musk ally off the board make it more likely that the deal is consummated?>>
It appears that either Musk doesn’t want to close the deal or wants a lower price. The board should try to hold him to the original price.
I understand that. But when this kind of thing happens, both sides lawyer up, spend a fortune on litigation, and then settle at something in between to stop the bleeding.
No doubt Musk has a claim that the “percent of users who are bots”, and now having an allied board member removed is making the company less valuable. The company will be in limbo while this is sorted out in the courts.
That makes no sense. How does kicking a Musk ally off the board make it more likely that the deal is consummated?
It makes it more likely that the board will fight - aggressively - to close at the highest possible price.
Musk has been signaling that he might try to re-trade the deal price. He didn’t engage in much direct negotiation when he initiated the takeover effort, just offering an above-market “take it or leave it” price. But now that TWTR’s got an agreement signed, there might be some considerable opportunity for actual bargaining here.
In such a circumstance, you’d like your board to be tough negotiators. If the deal’s going to close at a price lower than $54.20 (which the market thinks is very likely), you want the board to get it as close to that price as possible. Which means that some sharp negotiations are in order. Having one of your board members being an ally of your purchaser can be a liability in that.
No doubt Musk has a claim that the “percent of users who are bots”,
I’m not an M&A lawyer, but from what I’ve read Musk has zero claim that about the ‘percent of users who are bots.’ He failed to negotiate for any due diligence whatsoever. The claims that TWTR makes in their SEC filings are loaded with disclaimers and caveats. If Musk wanted to get a contingency, a representation, a warranty, or even a due diligence review on the percentage of bots among TWTR users, he had every opportunity to negotiate for one in his acquisition offer. He failed to do so.
I’m not an M&A lawyer, but from what I’ve read Musk has zero claim that about the ‘percent of users who are bots.’ He failed to negotiate for any due diligence whatsoever. The claims that TWTR makes in their SEC filings are loaded with disclaimers and caveats. If Musk wanted to get a contingency, a representation, a warranty, or even a due diligence review on the percentage of bots among TWTR users, he had every opportunity to negotiate for one in his acquisition offer. He failed to do so.
The difference between today’s $39 close and $54.20 indicates that the arbitragers see only a 20% chance the deal closes at $54.20.
LVMH and Tiffany had a similar dispute about a year and a half ago and LVMH secured about a 3% haircut on the original offer price. Betting here seems to be that Musk will secure a buzz cut. But I’m only looking at the numbers.
The difference between today’s $39 close and $54.20 indicates that the arbitragers see only a 20% chance the deal closes at $54.20.
LVMH and Tiffany had a similar dispute about a year and a half ago and LVMH secured about a 3% haircut on the original offer price. Betting here seems to be that Musk will secure a buzz cut. But I’m only looking at the numbers.
I don’t think that our views are in conflict. I also agree that there’s a very small chance that the deal will go through at the original price.
But there’s literally billions of dollars’ difference between a negotiated ‘haircut’ at, say, $40 versus $43. Or $39, or $44.20. Or whatever. Twitter shareholders benefit if their board can get the highest possible price out of Musk that the deal can close at. It probably won’t be $54.20, but there’s a lot of play between current prices and that number where the deal could land. Shareholders might think - plausibly - that they’ll be better off if one of Musk’s buddies isn’t a member of the board that’s trying to strike that deal.
Both sides have strengths to their negotiating positions. Musk continues to have on his side the fact that he’s likely overpaying for Twitter, even at less than $43 billion, and (as you point out) years of litigation would not be good for the company. But TWTR has a signed agreement with Musk at $43 billion, and (apparently) he didn’t negotiate much into that agreement that would give a legal way out of it. Musk doesn’t suffer as much directly from protracted litigation, but he obviously wants to actually own Twitter (rather than fight to get out of the contract), and he would prefer to own it with a lot of equity partners that he has lined up today but might not have lined up years from now.
No doubt Musk has a claim that the “percent of users who are bots”, and now having an allied board member removed is making the company less valuable.
I don’t see how the board members matter after Musk closes the deal. It becomes a private company at that point. A board of directors becomes optional. (Although still a good idea if functioning something close to the theory of corporate boards.) And selected entirely by the owner - Musk.
So how can having or not having a board member favorable to Musk affect the value in Musk’s hands?
…he would prefer to own it with a lot of equity partners that he has lined up today but might not have lined up years from now.
Since we know nothing and are all just guessing…
I think it’s much more likely that he’s lined up equity partners who are partners only if the price is lower. Like, “I’m in for $1B at $40/share.” At the original price, he’s got nobody (or very few, anyway). Jack Dorsey is probably in with his shares at any price, but probably not additional $.
Anyway, lots of opportunity for kibitzing and eating popcorn which this plays out.
The board members are a bunch of clowns who own not a share of Twitter stock among them last I looked. Nor do any of them actually use Twitter to any extent. It’s kind of ridiculous.
I think it’s much more likely that he’s lined up equity partners who are partners only if the price is lower. Like, “I’m in for $1B at $40/share.” At the original price, he’s got nobody (or very few, anyway). Jack Dorsey is probably in with his shares at any price, but probably not additional $.
I’m sure Musk would like to pay a lower price, but Musk made at offer at $54.20. The board accepted his offer. There is a signed contract, in other words.
Now he seems to be saying he doesn’t like his original terms. I am not an attorney and have no experience in this area, but there is a legal precedent that once you agree to close the deal, you actually have to close the deal:
Delaware state judge ruled yesterday that Tyson Foods Inc., the nation's largest poultry producer, had no legal grounds for withdrawing its $3.2 billion offer to buy IBP Inc. and ordered Tyson to complete the deal.
In a 148-page opinion, issued after the market closed, Leo E. Strine Jr., a vice chancellor of the Delaware Chancery Court, determined that the merger agreement signed by both companies was ''valid and enforceable,'' despite Tyson's protests that hidden financial troubles at IBP were enough to scuttle the acquisition.
Again, not an attorney, but Musk’s theory that the deal is off because his backers want a lower price than he already agreed to seems an awful lot weaker that hidden financial troubles. The delta between $54.20 and $40 a share means billions of dollars. Musk might be able to cut a deal, but maybe not. If I were Twitter’s board I absolutely would try to enforce the contract. It might mean a few million in legal fees, but result in a few extra billion transferred out of Musk’s pocket.
I don’t see how the board members matter after Musk closes the deal… So how can having or not having a board member favorable to Musk affect the value in Musk’s hands?
It could make a difference before the deal is completed.
I think it’s much more likely that he’s lined up equity partners who are partners only if the price is lower. Like, “I’m in for $1B at $40/share.”
Also entirely possible. But those folks are unlikely to be willing to set aside their billions for years - their participation is probably based on the deal closing along the time frame that TWTR and Musk have agreed to (more or less).
My point is that having the sale devolve into years of protracted litigation probably isn’t something Musk wants, either. He obviously wants to buy TWTR, not litigate over it - and the financial arrangements he’s lined up for equity partnerships are likely time limited. So both he and TWTR have strong incentives to avoid a courtroom battle over the current deal.