Twitter grapples with an Elon Musk problem

SAN FRANCISCO — Bright and early on Monday, Elon Musk sent the government a surprising new document.

In it, the world’s richest man explained his possible intentions to Twitter, in which he has amassed a 9.2 percent stake, and underlined how drastically his position had changed since a week ago.

Mr. Musk, if he chose, could buy more Twitter stock and increase his ownership of the company, according to the document filed with the Securities and Exchange Commission. He was free to express his views on Twitter on social media or other channels, the document said. And he reserved the right to “change his plans at any time, as he sees fit.”

It was a promise – or maybe it was a threat. Regardless, the application summed up the treacherous situation Twitter is now in. Mr. Musk, 50, Twitter’s largest shareholder and one of its most prominent users, could very well use the social media platform against himself and even buy enough stock to take over the company.

“Twitter has always suffered more than its fair share of dysfunction,” said Jason Goldman, who was part of Twitter’s founding team and has served on its board of directors in the past. “But at least we weren’t actively trolled by potential board members using the product we made.”

The filing followed a week of high-stakes drama between the billionaire and the company. Last Monday, Twitter revealed that Mr. Musk had built up stock, now worth more than $3 billion, in the company. A day later, he was invited to Twitter’s 11-member board and agreed to own or acquire no more than 14.9 percent of the company. Then on Sunday, Twitter abruptly said that all those bets were void and that Mr. Musk would not become a director.

What exactly happened between Mr. Musk, who has more than 81 million followers on Twitter, and the company’s executives and board members is unclear. But it leaves Twitter — which has survived the infighting of its founders, boardroom riots and anger from outside shareholders — with an activist investor like no other.

Mr. Musk, who also heads electric car maker Tesla and rocket company SpaceX, is known for being unpredictable and outspoken and often uses Twitter to criticize, insult and troll others. By no longer serving on the board of directors, he freed himself from corporate governance rules that required him to act in the best interest of the company and its shareholders.

Mr. Musk leaned on that freedom after his decision was communicated to the company Saturday morning. He stated on Twitter that he was in “goblin mode” and suggested changes such as removing the “w” from the company’s name to make it more vulgar and opening its San Francisco headquarters to protect the homeless. He later deleted some messages.

“This isn’t typical activism or, frankly, anything like activism we’ve seen before,” said Ele Klein, co-chair of the global Shareholder Activism Group at the law firm Schulte Roth & Zabel. “Elon Musk isn’t doing things that people have seen before.”

Patrick Gadson, co-head of the Shareholder Activism practice at Vinson & Elkins, another law firm, said he sympathized with Twitter. “I would never want any driver I represent, or any driver for that matter, to face this situation,” he said.

Mr. Musk did not respond to requests for comment. He didn’t directly address the situation regarding Twitter’s governance, but liked a tweet that suggested the company wanted to restrict its freedom of expression.

Parag Agrawal, the CEO of Twitter, hinted at how Mr. Musk should have behaved as a “fiduciary of the company” in a post on Sunday. Twitter, which published a biography of Mr. Musk as a board member that was visible late Sunday, declined to comment Monday.

Twitter CEO Parag Agrawal tweeted Sunday that the company would be open to Mr Musk’s input. Credit…via Twitter

Mr. Musk has long shown a significant lack of respect for corporate governance rules. In 2018, he faced securities fraud after falsely tweeting that he had secured funding to take Tesla private. Mr. Musk later agreed to pay a $20 million fine to the SEC and step aside as Tesla chairman for three years.

He also agreed to allow Tesla to review its public statements about the company. But in 2019, the SEC asked a judge to contemplate him for violating the settlement terms by continuing to tweet falsely about Tesla.

According to half a dozen current and former employees, who were not authorized to speak publicly, employees on Twitter Monday were stunned and concerned about Mr. Musk’s antics. After the billionaire suggested this weekend that Twitter would convert its headquarters into a homeless shelter because “no one will show up anyway,” employees wondered how Mr. Musk would know, given he hadn’t visited the building in a while. They also pointed out that Mr. Musk, whose net worth is pegged at more than $270 billion, could easily afford to help the homeless people of San Francisco himself.

Others said they were upset about Mr. Musk’s tweets criticizing the company’s product and business model, noting that he took the time and thought that went into updating Twitter services over the years. and that he had no knowledge of the product roadmap. Some employees said they were relieved after reading that Mr. Musk would not be serving on the board, according to people viewing internal communications on Twitter.

When it still appeared that Mr. Musk would join the board of directors, Mr. Agrawal scheduled a question-and-answer session for Mr. Musk to respond to the concerns of the employees. The session has been canceled, said a person with knowledge of the decision.

Mr. Musk’s push is the second time in two years that Twitter has dealt with an activist investor. In 2020, investment firm Elliott Management acquired a 4 percent stake and used its position to push for changes, including ousting Jack Dorsey as chief executive and more aggressive financial growth. Mr Dorsey stepped down in November.

Elliott’s approach followed the typical formula for activist investors: acquiring a significant stake in a company and then pushing for management and strategy changes to drive the stock price up.

“Normally, an activist is very clear in his intentions,” said Rich Greenfield, an analyst at LightShed Ventures, a venture capital investment fund. But “we don’t know what Elon Musk’s true motivation is. Is this Elon having fun? Is this Elon trying to bring about change? Is this Elon trying to get the stock higher?”

Twitter is particularly sensitive to activists, analysts say, because its founders didn’t structure the company’s stock in a way that gave them more control. The founders of Google and Facebook have retained voting power over the stock, giving them an excessive grip on the direction of their companies.

Natasha Lamb, a managing partner at Arjuna Capital, an activist investment firm that owns some Twitter stock, said Mr. Musk took a more casual approach than other activist investors.

“Musk uses Twitter to voice his opinion, but it’s not a core business,” she said. “It seems to be what he does for fun.”

What is nice for Mr. Musk, may not be so much for Twitter. The relief among Twitter employees that he was no longer on the board was short-lived, the current and former employees said, as they realized he was no longer bound by an agreement not to buy stock or sell the company. to take.

Mr. Musk could keep playing with Twitter, the current and former employees had understood. Several added that they were afraid of what might come next.

Lauren Hirsch contributed reporting.

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