The Twitter board did the smart thing. Now it must do the right thing. On Tuesday, the US social network filed an initial proxy statement that will guide shareholders when voting whether to approve Elon Musk’s $44bn buyout. Directors say they quickly realised the initial offer at $54.20 per share would be a good deal given the company’s prospects.
The board then negotiated a legal clause that forces Musk to fund his equity commitment and complete the transaction when all other closing conditions are met. That means the electric vehicles tycoon has no easy exit if he gets cold feet.
His toes are now exhibiting early symptoms of frostbite. Lately, Musk has griped that the Twitter app is overrun by bots. But according to the filing, he did not request any non-public information during formal deal talks. He did little other due diligence before signing on the dotted line.
Musk’s new grievances provide little justification to walk away. Still, the entrepreneur has form as a legal brawler. He may try to drag out the fulfilment of his obligations. Equally, Twitter could simply let Musk pay a $1bn break fee and let everyone move on. That might be in the narrow self-interest of all sides. But the social cost of allowing contracts to become options demands that the board fight for what it bargained for.
According to projections disclosed in the Twitter filing, the company’s annual revenue will double to $12bn between 2022 and 2027. Still, the company’s unlevered free cash flow, accounting for stock-based pay, is negative and is only expected to reach $2bn by $2027.
Musk and his backers have committed to $13bn of debt whose annual interest expense alone would exceed $1bn before capital expenditure was accounted for. Those figures — and the collapse in tech stock since the deal announcement — means his nervous gestures are understandable.
The gung-ho bullishness of the richest man in the world is also responsible for his predicament. He may fight hard to escape the gilded cage he has built for himself, even with the US Securities and Exchange Commission.
The board has managed Twitter feebly for years. It can win partial absolution by insisting firmly that Musk closes this deal at the agreed terms.
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