Musk does not join the board of directors, will he make a “hostile merger” Twitter?

Recently, Tesla CEO Elon Musk became the largest shareholder of the well-known social media Twitter and is expected to take the board of directors, driving Twitter’s stock price soaring. But Twitter CEO Parag Agarawal later confirmed that Musk would not join the board, a move that analysts pointed out gave Musk an opportunity to hostile takeover Twitter, which could lead to further volatility in Twitter’s stock.

CNBC, The Wall Street Journal and other foreign media reported that Twitter submitted a document to the U.S. Securities and Exchange Commission (SEC) on the 5th that it plans to appoint Musk to the board of directors for a term until 2024. According to the agreement between the two parties, Musk agreed to acquire no more than 14.9% of Twitter’s outstanding shares during his tenure as a director of Twitter.

The report pointed out that Musk’s decision not to join Twitter’s board means that his stake is no longer capped at 14.9%. In this case, many analysts believe that Musk can try to fight for the company’s operating rights by continuing to buy shares of Twitter.

The so-called “hostile merger” means that the acquirer, without the consent of the board of directors of the target company, uses a large amount of funds to obtain a controlling stake, and then achieves the ultimate goal of becoming an operator.

Don Bilson, a research consultant at Gordon Haskett Research Advisors, said Agarawal’s announcement on Twitter that Musk would not be joining the board and warning employees of “distractions ahead” in a statement was unusual.

Twitter’s regulatory documents submitted to the SEC show that Musk acquired a total of 73,486,938 shares of Twitter for $2.89 billion, holding a 9.2% passive stake in Twitter and becoming Twitter’s largest external shareholder.

After the news was exposed, Twitter’s stock price soared 27.12% on April 4, the largest single-day increase since its IPO, and rose again by 2.02% on the 5th. The latest closing price on the 11th was $47.01.

It is worth noting that Twitter does not have a dual-class stock structure like Google parent company Alphabet or Meta Platforms (formerly Facebook), that is, stocks with high voting rights have more decision-making power. Therefore, Twitter must adopt “poison pills” (poison pills), selling shares to the company’s original shareholders at a discount, raising the cost of the acquirer, in order to counter the hostile mergers.

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