Elon Musk buys 9.2% of Twitter, making him the largest shareholder

News of the purchase sent shares of Twitter (TWTR) increasing 22% in the first operations. Musk did not disclose how much he paid for the shares, but his stake was worth $2.9 billion at the close of trading on Friday and $3.5 billion after the rally early Monday.
Musk’s presentation did not reveal the purpose of the purchase or any plans for the company. But he has been a high-profile critic of Twitter’s policies in the past. Last month he said he was “seriously thinking” about creating a new social media platform.
“Since Twitter serves as the de facto public square, failing to adhere to the principles of free speech fundamentally undermines democracy,” Musk said. tweeted last month. “What should be done?”

Any time an investor buys 5% or more of a company’s stock, they must disclose the purchase in documents filed with the Securities and Exchange Commission. Although a less than 10% stake in a company is considered “passive” in the eyes of Wall Street, it could indicate an effort by Musk to take a more active role in running Twitter. That’s one of the factors that drives other investors to buy stocks and drive the price up on Monday morning.

“I think he intends to go live and force change on Twitter,” said Dan Ives, a technology analyst at Wedbush Securities. “This is an opportunity for Twitter’s board of directors and management team to start discussions.”

Even if Musk doesn’t try to change the way Twitter operates, his big purchase could prompt other activist investors to take a stake in the company, Ives said.

“One way or another, it’s going to change the course of Twitter,” Ives said.

Ives said it’s probably unrealistic for Musk or anyone else to try to start building a new competitive platform from scratch. So it makes more sense for him to try to change practices at Twitter.

Twitter did not have an immediate response to a request for comment on Musk’s investment.

Musk among the most popular tweeters

Musk has 80 million followers on Twitter, far more than any other CEO. And he is a frequent tweeter, using it as the main way to spread news about both of them. Tesla (TSLA) and SpaceX, the two companies he runs, neither of which has the traditional public relations department at other companies.

However, his tweets have gotten him into trouble at times.

In 2018, Musk tweeted that he would take Tesla private at a price of $420 per share and that he had “funds secured” to do just that. It later became clear that while he had discussions about financing such an offer, financing was by no means assured.
Musk settled the case by stepping down from his role as chairman of Tesla, although he remains its CEO. He and Tesla also paid a $20 million fine each, and Musk compensated the company for its payment by buying an additional $20 million worth of Tesla stock.

He also agreed to have other Tesla executives review any of his future tweets that might contain material information about the company before sending them. The SEC has questioned whether or not it is complying with that provision of the agreement, and Musk and the agency are fighting over that issue in court.

The recent Twitter turmoil

Twitter founder Jack Dorsey stepped down as chief executive last November in a sudden move without the kind of advance notice that normally comes with this kind of leadership change. He was succeeded by Parag Agrawal, who had been chief technology officer.
Musk had expressed i support dorsey in the past when facing criticism from some shareholders. And when Agrawal was first named CEO of Twitter, Musk responded to a tweet in which someone pointed out that Google, Microsoft, Adobe, IBM, Palo Alto Networks, and Twitter are run by executives who grew up in India, Musk responded with his own cheep: “America benefits greatly from Indian talent!”
But a few days later he tweeted a meme that equated Agrawal with former Soviet leader Joseph Stalin and depicted Dorsey as a former Stalin who was confident the dictator had later assassinated.

“Musk has already indicated that he did not agree with Agrawal’s appointment and wants some changes,” Morningstar analyst Ali Mogharabi said in a note to clients. “This creates a bit more uncertainty about how Agrawal and the company can respond to the company’s now largest shareholder.”

Unlike Musk, who owns more than 20% of Tesla, Dorsey’s stake in Twitter is relatively modest, with just 2.3% of the company’s shares.

Musk doesn’t necessarily need to become CEO of Twitter in order to persuade the company to change its practices, Ives said. And it’s not entirely clear what changes he’d like to see.

It recently conducted a Twitter poll asking its followers if they think Twitter strictly adheres to the principle of freedom of expression (70% said no) and another poll asking if its algorithms should be open sourced (83% said yes). Yes). Both surveys attracted more than 1 million responses.

But the kind of changes Musk might be advocating on Twitter could be very different from what a traditional activist investor might seek, which is usually related to increasing a company’s share price.

Activists have targeted Twitter in the past

Twitter has clashed with activist investors before. Hedge fund Elliott Management in 2020 pushed for changes to the platform, including the possibility of ousting Dorsey or insisting he give up a separate CEO role he held at the payments technology company. Square (square). Dorsey survived that challenge, but ultimately decided to leave Twitter more than a year later.
Twitter has become a target for critics on both sides of the political divide. Some believe that the platform did not do enough to combat misinformation about covid-19 and alleged voter fraud. Others believe it was wrong to censor some views, including former President Donald Trump’s ban.
Twitter’s market value of $31.5 billion is a fraction of what companies like Tesla or rival social media giant Meta, the owner of Facebook and Instagram, are worth. And Twitter shares have lost more than half their value since February 2021, when the company reported that its efforts to tackle misleading content surrounding the US election cost the platform some users.
Still, it would probably be too costly for Musk to buy Twitter on his own, Ives said, especially since most of his wealth is tied up in his shares of Tesla and SpaceX. Musk is the richest person in the world, with an estimated net worth of $288 billion, according to Forbes.

“It would have to partner with private equity,” Ives said. “It’s not like he can do it himself.”

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