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Risking economic poison for its own shareholders, Twitter is taking an imprudent stand against Elon Musk. Why?
Fear is the likely answer. Directors of the board know that Musk will show them the door, as he should, for the incompetent way they have managed the world’s most powerful social media platform. Even the company’s founder Jack Dorsey who still sits on the board described it this weekend with the word, “dysfunction.”
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But perhaps it’s more complicated (and nefarious) than that. Maybe Twitter doesn’t want hidden algorithms to be exposed—computer formulas designed to diminish the prominence and frequency of tweets by conservatives. The company denies that it “shadow-bans” users, but the evidence persuades otherwise.
Musk has stated that this material should be “open-sourced” or made available for public scrutiny. He advocates honesty and transparency in the name of fairness. Such a concept is anathema to Twitter which prefers to operate in the shadows. This would explain the company’s current panic.
After establishing itself as the premier censorship enterprise in America, Twitter has now adopted what is derisively known as a “poison pill” strategy to foil Musk’s acquisition offer of $43 billion. His only real offense is a desire to rejuvenate the media platform to promote free speech, not stifle it.
Meanwhile, the only thing the pill is managing to poison are the interests of the shareholders.
Those same shareholders should now sue Twitter for embracing a plan that is both an illegitimate defensive mechanism and destructive in value. Instead of maximizing shareholder worth, the company’s board of directors seeks to dilute it while pretending that its stock owners will somehow benefit in the long run.
As with many “poison pills,” it’s a charade driven by an ulterior purpose concealed.
Musk’s tender of $54.20 a share is a generous premium given that the existing stock price hovers around $45 which is substantially higher than its $39 price prior to his announced bid. It’s an all-cash offer. Therefore, shareholders are not being threatened with a highly structured “coercive” bid which the law frowns upon.
The takeover offer is more than fair when you consider that “Twitter lost $221 million in 2021 and $1.1 billion in 2020,” as The Wall Street Journal noted. Musk is doing shareholders a financial favor. Naturally, the entrenched and insular board doesn’t see it that way. Those directors care only about protecting themselves and their dictatorial operations at the expense of the people who actually own the company.
Known misleadingly as a “shareholder rights plan” (a wonderfully innocuous term), the board’s aim is to thwart the buyout by offering existing shareholders—sans Musk—the right to purchase additional common stock at a discounted price. That might sound appealing until you consider how flooding the market with even more shares will invariably diminish their overall value.
Twitter is incorporated in Delaware where draconian “poison pill” maneuvers have been generally, albeit incorrectly, upheld. However, there is an important exception to the prevailing rule. They are only valid when the company’s offer is superior to the hostile bidder’s offer.
This is where Twitter’s “poison pill” fizzles. Musk’s cash bid portends greater benefit to the average shareholder who has watched with frustration as the company’s stock has languished for too long. Chronic mismanagement can rightly be blamed for that.
Twitter’s board of directors feels threatened by Musk, as they should. Their reign of information subversion would end if the richest man in the world gains control. No more protecting Joe Biden by banishing New York Post stories about his son’s corrupt influence peddling schemes. No more disabling accounts and de-platforming users because they fail to promote a “woke” culture or conform to Twitter’s progressive ideology.
Is it any wonder that all the virtue signaling liberals at Twitter are suffering a major meltdown over the notion that their prominent platform might be used constructively for diverse opinions and freedom of thought? They are apoplectic that anyone who dares to disagree with them could utilize Twitter to express themselves.
“Twitter has extraordinary potential. I will unlock it,” proclaims Musk. And that is precisely what the company fears. Twitter is deathly afraid of an equitable and inclusive venue. What it cannot seem to grasp is the harm that its political and social bias is causing to the company and those who own its shares. As a for-profit venture, Twitter has underperformed spectacularly.
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Broadening Twitter’s appeal will inevitably expand its user base, if only it would choose the right course and unshackle itself from the tyranny of the left. Substantial growth potential could be achieved. Greater profitability will follow.
The board’s refusal to allow shareholders to vote on Musk’s proposal and to swallow instead a “poison pill” is exactly what the term implies—self-destructive. It also constitutes a grievous failure of sound corporate governance.
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Even if Musk throws up his hands and walks away, shareholders would still be justified in suing Twitter for its breach of fiduciary duty over a lucrative opportunity squandered. They should not bow to the deference of a self-interested board.
Let the lawsuits begin. Maybe that will get the directors’ attention. But I doubt it.
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