Explained: How Elon Musk made an open offer that Twitter can refuse

The world’s richest man, Elon Musk, has made an open offer to buy Twitter. About a week ago, Musk revealed he owned 9.2 per cent of the publicly-listed social media platform. He was offered a seat on the board with a caveat; he could not buy more than 14.9 per cent stake.

Musk refused the seat and made an offer to buy 100 per cent of Twitter, for $54.2 per share, valuing the company at about $43 billion. (He is worth about $273 billion). The offer is at a handsome premium of 38 per cent to the price the day before Musk’s stake was disclosed. The offer came with a veiled threat. Musk hinted that if he couldn’t take control of Twitter, he would look to sell his stake.

Twitter CEO Parag Agrawal has said he can’t discuss the contours of the offer but the board is considering the deal. Of course, it would still be up to individual and institutional shareholders to make choices and Musk has pointed that out. Agarwal has said, “Musk is both a passionate believer and an intense critic of the Service (Twitter).”

When Agrawal became CEO, Musk morphed Agrawal’s face onto a picture of Stalin pushing former CEO Jack Dorsey (also morphed) into a river. Musk has said that he believes Twitter shouldn’t carry any advertising, which would kill a major revenue stream.

The US market regulator, Securities and Exchange Commission (SEC), has raised red flags about the deal. Instead of using formal channels, which would have committed Musk to keeping the offer open for 20 days, disclosing the source of funding, the purpose for buying the company, etc., he’s just made a filing at the SEC and tweeted the link. Thus, this may not even be legally binding and it obfuscates relevant details. Given that Musk is hardly an innocent at corporate affairs, he’s bypassed the rules deliberately.

Musk uses Twitter (he has 82 million followers) in ways that have led to ongoing regulatory actions. In August 2018, Musk tweeted that he could take Tesla private at $420 per share — a substantial premium to its price at the time — and claimed funding for the transaction had been secured.

The SEC dropped on him like a ton of bricks, charging him with securities fraud. The regulator said, “Musk knew that the potential transaction was uncertain and subject to numerous contingencies. Musk had not discussed specific deal terms, including price, with any potential financing partners, and his statements about the transaction lacked an adequate basis in fact.”

The SEC also pointed out that Musk’s tweets caused Tesla’s stock price to jump by over six per cent. He was fined an insignificant $20 million and Tesla was also fined $20 million and agreed to settle. More importantly, Musk agreed to step down as Tesla’s chairman (he stayed CEO). He has an ongoing appeal against the SEC.

Insofar as he has stated reasons for the buyout, he’s tweeted that it cannot fulfil its full potential unless it’s taken private and tweeted screenshots of a Goldman Sachs report captioned with a “thinking face” emoji.

For free speech advocates and generic Twitter users, the prospect of Musk as owner is dubious. Twitter as a private platform has pretty much the right to ban any content it chooses. But as a publicly traded company, it has a board and shareholders who can question content policies. Like other social media, it has been used to disseminate fake news and share hate speech. It has, on occasion, chosen to ban prominent users such as former US President Donald Trump.

However, if Twitter was owned by an individual, that person’s ability to craft content guidelines precisely as he chose would be enhanced. For all his protestations in favour of free speech, Musk would have huge conflicts of interest. He sells cars, rockets and satellite services and may choose to ensure nobody criticises a regime (any regime) which is a potential market. He is also often involved in offensive exchanges on Twitter and as a majority shareholder, he would have the option of making such exchanges one-way.

Another billionaire, Mark Cuban, tweeted, “My conclusion, @elonmusk is f*****g with the SEC. Price goes up. His shares get sold.” It is a conspiracy theory other analysts have seriously considered.