“The board has three options: One, they can go it alone, say, ‘Get lost, we’re good,'” said Donna Hitscherich, a senior lecturer at Columbia Business School. “Two is they can engage with Musk, either at this price or at another price. Three is they can find someone they like better.”
With all three options, however, Twitter and its employees appear to be in for a certain amount of disruption in the days and weeks ahead.
Twitter declined to comment on the timing for the board meeting and reports of an all-hands meeting.
In his letter sent to the company announcing his offer, Musk said he believes “Twitter needs to be transformed as a private company.” He added: “Twitter has extraordinary potential. I will unlock it.”
Musk did acknowledge the uncertain road ahead. “I’m not sure I’ll actually be able to acquire it,” he said in an interview with TED on Thursday afternoon.
It’s possible that the board, which has a fiduciary duty to recommend what’s best for its shareholders, will determine Musk’s offer is a good one worth accepting. Musk’s offer of $54.20 per share is an 18% premium over Wednesday’s closing price and is 38% higher than its closing price on April 1, the last trading day before Musk disclosed his more than 9% ownership stake in Twitter.
“The offer looks very attractive, well priced, and the board, with all its fiduciary duties, is going to have to look carefully at it to see if it’s a fair price and, of course, if the takeover makes sense to everybody in the longer run,” said Mike Useem, a professor of management at the University of Pennsylvania’s Wharton School.
Still, it’s unlikely the board will simply say, “Yes, thank you very much, and accept the offer,” said Kenneth Henderson, partner at law firm Bryan Cave Leighton Paisner. As part of its process to consider the deal, the board will likely analyze and discuss with lawyers and bankers how Musk’s offer compares to the company’s potential long-term value if it continues on its current path as a public company with its existing strategy.
“In our view, the deal does not get done at this level, and Twitter’s Board will not view this offer, or Mr. Musk leading a change in the company, as in the best interest of the company or shareholders,” Wedbush analyst Ygal Arounian said in an investor note Thursday. Although higher than its recent trading prices, Musk’s offer is well below the nearly $72 that Twitter’s stock was trading at last July following a strong earnings report.
If the board doesn’t want to play ball with Musk, it may have a few other options. Musk’s offer may open the door for other would-be Twitter owners to make their own bids, potentially at a higher price. Twitter has been an acquisition target in the past, but some of its potential buyers — its larger rivals — may be restrained in making bids because of recent antitrust scrutiny.
The board could also quickly put in place what’s called a “poison pill,” a corporate anti-takeover tactic that essentially reserves the right for all shareholders other than a hostile party to buy more shares at a steep discount, effectively diluting the hostile party’s stake in the company. Such a maneuver would likely kick in if Musk — perhaps looking for other ways to bolster his control over the company or to sidestep the board — decided to make a “tender offer” to buy shares en masse directly from shareholders. And while it wouldn’t necessarily stop Musk in his tracks, it could help bring him to the negotiating table to discuss a higher price, Henderson said.
Still, it might be in the board’s best interest to play nice with Musk as much as possible. Musk suggested in his filing that Thursday’s offer was his “best and final” and that if the board didn’t accept, he would “need to reconsider my position as a shareholder.” If Musk dumps his shares, that could be bad news for Twitter’s stock price and for the company’s leadership team.
Musk, too, could benefit from a friendly process. “It’s best to do it friendly because … [Musk] would like to be able to do due diligence and understand the business,” Hitscherich said.