There’s a growing number of pundits and outlets, including some with a bad track record but also some very respectable publications like the Financial Times and Fortune that are pontificating that Musk isn’t really going to go through with the Twitter acquisition and, instead, will pay the billion dollar fine that is required if the deal falls through. To put it simply, the argument is flawed; there’s little room in the contract for Musk to do that (he can’t simply just write a billion dollar check and walk away), and there’s evidence that he is getting ready to execute the purchase (including a $5 billion sale of Tesla (TSLA) stock).
All evidence suggests that Musk is serious in his purchase, and the musings that he will not point to something else: Elon Musk is an endless source of pontification and guessing from the chattering classes, where accuracy and a close reading of the facts on the ground don’t really matter that much. What matters instead is having fun with the situation—playing with them in a way that mirrors Musk’s own less-than-serious playfulness.
Twitter’s executive board, however, show no signs of anything but seriousness in their response to the offer. At first Twitter’s CEO Parag Agrawal approached lawyers, bankers, and his board of directors about the purchase to see if the price was fair and if they had to accept it; bankers replied that, given the company’s growth trend and earnings potential, the $54.20 share price was better than anything Twitter would get in the short term. And that is why, after initially refusing the offer, Agrawal accepted it, essentially putting himself and his co-directors out of a job.
One in-depth writeup of the situation pains a pretty damning picture of Agrawal, suggesting that he was working in the best interests of shareholders exclusively by accepting a deal that would increase its share price. “Twitter is a public company owned by shareholders. There are other companies which may have other legal mechanics … Twitter is not one of those companies,” he is quoted as saying.
To say that Agrawal was legally required or had a fiduciary obligation to accept Musk’s offer would be, both legally and logically, incorrect. Case law from hostile takeovers in the 1980s shows that the impact of a takeover on people besides shareholders can legally be considered by management, particularly if management can demonstrate how those factors can impact shareholder value.
Twitter’s management, however, failed to do this. And yet they could have.
It is impossible to psychoanalyze strangers from afar, so it is difficult to infer why Agrawal and his team made the decision it did. As Musk recently tweeted, TWTR management has one of the lowest ownership of shares of any tech public company, and the premium offered to shareholders was pretty small as these things go—about 38%. Furthermore, Musk’s very loud and public attacks on the board suggests that they should not expect to have jobs waiting for them when Musk does take ownership, which is probably about six months away.
For these reasons, concluding that Twitter’s management made the best fiduciary decision would make the most sense—but that just simply was not true, and even if Agrawal was not aware of this, his bankers and lawyers would have been. And despite Agrawal’s language to that effect, both case law and recent history demonstrate that he had much, much more room to interpret “fiduciary duty” as something very different from just taking Musk’s offer ASAP.
If anything, the move can be considered an incredible capitulation and admission of failure. Market pundit and ex-investment banker/lawyer Matt Levine put it simply: “Twitter’s Board Gave Up”. But why did they give up, especially when giving up meant losing their jobs?
It is hard not to conclude that management, whether consciously or subconsciously, felt that improving Twitter to a point where monetization was improved and the platform received less criticism and skepticism both from the public and lawmakers was something they would not be able to do—or, if they can, they don’t want to do it. It is important to remember that Twitter was profitable before Covid-19 and, despite one very bad quarter, had come close to eking out a decent cash flow afterwards as well.
We should also remember that Agrawal got the job only recently, after Jack Dorsey resigned in late 2021 following investor activism demanding improvements to Twitter’s performance (at the time it had badly underperformed Facebook (FB), Snapchat (SNAP) and other comparable big tech stocks by a huge margin, but it’s worth noting that recent failures at FB has helped Twitter catch up). Perhaps a few months into the job Agrawal felt it wasn’t something he wanted to do, or something he could not do—or, indeed, something no one can successfully do. Perhaps he sold TWTR to Elon Musk because he saw the company as a lost cause, so better handing over to one person to lose a lot of money with than to keep shareholders underperforming in perpetuity. Or maybe he thought he could not make the necessary changes to make it profitable while the company was public, and only by going private could Twitter do what was needed to reform.
We’ll probably never know.