Al Root, Senior Writer at Barron's, discusses possible scenarios if a Twitter buyout deal goes through and what a takeover means for the future of the social media platform.

Opening Bell

Elon Musk Offers to Buy Twitter for $43-billion

Here to discuss his out route. Senior writer at Baron's al Ellen said his offer for $54.20 is in line with what is best for investors and that Twitter shareholders should actually be the ones to vote on a takeover. Let's just kind of try to be a fly on the wall for the meeting that the board is having in terms of what their options are right now. What are they? Well, thanks for having me. Good morning. You know, I feel like I should start with some joke like who is this? Elon musk and why do we talk about him so much? Um, and the 54 24 20 you know, Ellen is very, very, very fond of cannabis themed memes. Now your question, um, you know, the board can reject or the board can start a process to sell the company, You know, say okay, you know, we're in play. So please give us your best and final offers. That's certainly an option. And then from must perspective shouldn't be voted on by shareholders and the board can reject it and never bring it to shareholders. But you know, that seems like, oh my goodness, how could you do that? But then, you know, he could just, Ellen could just go directly to shareholders and say, hey, share, sell me your shares, I'll pay you this much. That's, that's basically a proxy. Um, and that, that can happen too and then he can accumulate all the stock he wants and then perhaps get a majority of shares. So there's lots of things that can happen, but those are a few of the things that might transpire over coming weeks in terms of the proxy that you mentioned, there's there's been chatter this morning about a maneuver the board may be trying to consider. That would limit Elon musk legal maneuver, that would limit how many shares that Elon musk could buy any insight into what that maneuver could possibly be. Oh, that's a good point to. Right? So you know, board can reject board, can you know, start a process to sell the company? They could do a poison pill. You know, something that like you're talking about, you know, poison pills, these are corporate maneuvers to, you know, try and protect the existing asset from Raiders, right? So you poison pill will give every existing shareholder except Ellen the right to buy, you know, x number of twitter shares at $10 a share. It makes it far more expensive for Ellen to buy the rest of the company. Um You know, you know, so you know, just like people are shocked when, you know, the board rejects a bid of 54 20 when the stock, You know, prior to Ellen arriving was below 40 um seems like a good deal. You know, they're also shocked that what, you know, these poison pills don't seem fair, but you know, this is this is one of those things where, you know, boards try to have the best interests of shareholders at heart, right? And you know, it's not necessarily the best thing for long term investors to have their business taken over, right? It's a one time bump. But you know that poison pill, you know, it's something else they can try. It'll be interesting to see how this continues to play out in terms of, let's, let's do one scenario. It must said if his offer isn't accepted, if that's the scenario, the board ends up going with That, he is going to essentially dump his massive stake in the company and walk away entirely saying that's not a threat, but it's just something you have to consider. But we all know what happens if Elon Musk dumps 9.2% of the company's stock. Break that down for us though. You know, how could that impact the growth and then reputation of Twitter on top of the impact of the stock? Well, you know, if he was basically to take his ball and go home, if the board rejects, you know, I think that Two things. One is, you know, the stock, let's just say the stock does the, this is the most rapid and surprising round trip in history. Right? So it was, I can't remember exactly, let's go below 40 and then it went up 25% now it's up about 20% since his steak. Uh, and you know, let's just say, okay, sells the stock and you know, that creates pressure on chairs and we're right back where we started. Uh, then we'll come questions of, well, you know, what is Ellen going to do? Is he going to start his own platform? Um is he going to start de emphasizing Twitter in his own life? You know, he is one of the top 10 accounts, he has 82 million followers, Maybe 84 last time I checked, um you know, so that would be significant for the platform. Um you know, reputational e you know, I don't think twitter was really performing that well and I think that's one of the reasons Ellen took a stake. So, you know, if the board rejects and he sells the steak and the stock goes back down, you know, it'll feed this narrative that, you know what, Twitter is not performing very well. Um, so what will that do that will push management and the board to, you don't do something, you know, more dramatic than they have been to try and turn performance around anything barring that. And I think shareholders would start to get really frustrated. You know, we mentioned at the top of the show, we were talking about this headline and kind of the saga that's continuing around Elon musk and twitter is obviously that lawsuit that was just filed on securities for frauds against Elon musk over, not disclosing his position in time, allegedly, you know, 11 days past when it was supposed to be disclosed and then Elon musk potentially saving As much as $143 million you know, that shareholders could sue. Either way, this goes right. Either the Twitter board or Elon must just over the fluctuation in the company's value because to your point a moment ago if Elon musk Pulls out and it just goes back to where it was before this, that's at least or around $10 lower than what it is now. And some analysts are saying, you know, it can go as low as $23, you know, because of the impact to the reputation that could be had on this. Yeah, it's a fair question. I mean, shareholders can sue for a whole variety of reasons. Um you know, whether these things are ever successful is, is sort of a longer story, you know, there's a pretty clear, um, you know, the people that sold between Ellen Amassing 5% and you know, 9.2%. Um you know, selling for around $40 when perhaps they could have sold for about 48 a few days later, you know, that that sort of clear you no harm and easily calculable, I think most of these things um are sidebars, frankly, right? So, you know, Ellen um or mr musk, you know, we should refer to him by his last name. I don't know. Ellen um uh, you know, might face fines from the sec for not filing on time. Um, you know, he might face more substantial penalties, you know, Allah 2018 when he, when he did his agreement with the sec over his funding secured tweet, he may end up reimbursing some shareholders and having that money distributed. We're dealing with some sort of Ellen specific issues of hundreds of millions of dollars perhaps. And the crazy thing is that sort of rounding error for him, you know, he probably would find that money in his pockets. Um, so these are significant issues, but but these are not what will determine whether he is successful at twitter or not. Ultimately, if that makes sense. No, it certainly does. It's just fascinating to kind of see what what net ends here. In terms of scenarios we looked at obviously, you know, whether the board rejects this, but if, if this gets approved somehow, Elon must take the company private. What does this mean? You know, for misinformation and harassment on the platform because Elon musk is a self proclaimed kind of absolutist around, you know, free speech. Um, you know, is the platform obligated to regulate, you know, twitter users or does this kind of pull all the rains and we could see anything goes well, I remember when Jack Dorsey was testifying before congress and you know, every answer to two questions from, you know, Republican and Democratic senators was effectively this person, you know, violated our terms of service. Um, uh, you know about about any of these theoretical, like what if I post this, what if I post this? And Jack would just say, you know, that would violate our terms of service and we have to look. So it's a great question. Right? So is it effectively become the wild west on twitter because you know, free speech absolutists. Now, you know, he had this interesting tweet in response to a Saudi shareholder about journalistic free speech. So maybe he is a free speech advocate in the truest sense of politically motivated free speech. So maybe that is, you know, one way to view what Elon would do on the platform, but you know, there's so many implications. And one of the things that the reasons I think he wants to take a private is because you know, if you effectively, um, you know, loosen the reins and it becomes a little bit more untenable for advertisers in terms of how they view their brands. Well, advertising revenue is 90% of Twitter's revenue. So it would be a massive transition and, and a total business model rebuild. Um, so who knows, it's the excellent question you asked and I think the honest answer is we'll see. Yeah, really quickly here. I only got like 20 seconds, but if you had to bet on how this plays out, how do you think it does? I think the board rejects. I think they put the company up for sale. Uh, and um, I think Ellen doesn't like to lose. And so he either goes the proxy route or his best and final offer wasn't really his best and final. All right, well, we'll end up seeing it feels like it's gonna play out faster than we all expected. Certainly has this week. I really appreciate your time. Our roots senior writer at Barons.