As soon as Elon Musk’s $44 billion, very public conquest of Twitter began, I pined for a very particular moment in the battle. It was the moment, of course, when I could get my hands on Twitter’s 235-page proxy statement, filed with the S.E.C., which would provide the rarest and most intimate view of what it was like to be in the eye of the Elon hurricane, all in the clear and artful prose of white shoe attorneys. Absent a chatty banker or lawyer (an increasingly rare commodity these days), it’s probably the most we’re going to learn, in the short-term anyway, about what happened.
The fun starts on page 41, in the “Background of the Merger” section, with what you might call the quiet and calm anatomy of a quasi-hostile takeover. We know from Elon’s filings with the S.E.C. that he began acquiring his 73.5 million share position in Twitter starting at the end of January and finished up toward the end of March. Once assembled, on March 26, Elon called up his buddy Jack Dorsey, one of the Twitter co-founders who has just exited the Twitter board. Elon and Jack discussed the “future direction of social media, including the benefits of open social protocols.” That same day, Elon also called Egon Durban, one of the co-heads of Silver Lake Partners, a powerful Silicon Valley buyout firm and also a Twitter director. When they spoke, Elon and Egon discussed the possibility of Elon joining the Twitter board “as well as the fact that Mr. Musk had purchased a significant stake” of more than 5 percent in Twitter. Oh, that.
Egon let the rest of the Twitter board as well as Twitter management know the big news. The next day, Bret Taylor, the chairman of the Twitter board, and Parag Agrawal, Twitter’s C.E.O., chatted with Elon about his plans for his Twitter stake. Elon told them he was thinking about potentially joining the Twitter board, or possibly buying Twitter and taking it private, or starting a competitor to Twitter. That must have caused a shudder to go down the spines of Taylor and Agrawal.
Not much seemed to be happening again until April 3. That’s when bankers at JPMorgan Chase attended a Twitter board meeting to discuss the developments with regard to Elon’s stake in Twitter and his potential actions. The Twitter board’s nominating committee recommended offering Elon a seat on the board, figuring that it would be better to have Elon inside the tent than outside the tent. The board approved a seat for Elon, subject to a background check. (Can you imagine what that document looks like?) The next day, April 4, Elon disclosed publicly his large equity stake in Twitter.
That’s when all hell broke loose, as you will recall. That same day, there were further discussions with Elon about the terms under which he would join the board, including agreeing not to purchase more than 14.9 percent of Twitter’s stock in exchange for the board seat. Elon told Twitter that he would not agree to limit his “public statements” regarding Twitter (and he certainly has not done that). Twitter sent Elon a draft of a letter agreement about the conditions by which Elon could join the Twitter board. The next day, April 5, Elon and Twitter announced the “entry into” letter agreement. For the next few days, Agrawal chatted with Elon about Twitter’s business; Elon spoke some more with Jack about Twitter; and Jack shared his view with Elon that Twitter would be better off as a private company. Elon asked Jack if he would be willing to stay on the Twitter board but Jack said he would not. With his background check complete, Elon was set to join the Twitter board on April 9.
Willing to Go Hostile
We all know, of course, that did not happen. On April 9, Elon informed Taylor and Agrawal that rather than join the Twitter board he would be making an “offer to take Twitter private.” Yikes! It’s not every day that a potential board member declines a board seat and instead offers to buy the company. That news was announced April 10, the same day that Twitter enlisted Goldman Sachs, as a second banker, and Simpson Thatcher, a second law firm, to work alongside Wilson Sonsini, the Silicon Valley law firm. On April 12, the Twitter board met with its new advisors and discussed what to do, if anything, about Elon.
Was there an alternative buyer? What if he went hostile, by starting a tender offer? And, interestingly, might there be more value for Twitter shareholders if Twitter and Elon negotiated together “the terms of an acquisition,” as the proxy put it? The board also discussed implementing a so-called Poison Pill defense. On April 13, Elon sent a letter to the Twitter board about his $54.20 offer and then announced it publicly the next day. Over the next eight days, according to the proxy, Elon tweeted comments that gave the Twitter board agita, particularly that he “might commence an unsolicited tender offer…imminently.” If Elon made his offer directly to Twitter shareholders, the Twitter board risked losing control of the process.
Also on April 14, the Twitter board met with its financial and legal advisors to, at last, try to decide what to do about Elon. There was more discussion about implementing a Poison Pill. The lawyers reviewed with the board its “fiduciary duties,” code for Elon had put Twitter in play and it was likely the company would be sold, assuming Elon was for real—always a big “if” with him. Interestingly, the board rejected the idea of contacting potential third-party buyers for Twitter, in an effort to thwart Elon. Based on Goldman’s assessment, and that of Twitter’s legal advisors, the board decided that “other parties were unlikely to have the interest in, or capability to, acquire Twitter.”
I suspected that there were not going to be any real buyers for Twitter at a price higher than $44 billion, but the idea that the Twitter board decided not to approach any outside buyers is pretty surprising, especially from a legal perspective. The board probably figured that any potential alternative buyers would come out of the woodwork, given the attention that Elon’s offer received.
The Twitter board created a subcommittee—the “Transactions Committee”—to assist the Twitter board in evaluating Elon’s offer. The board appointed Taylor as well as Martha Lane Fox, a British baroness and businesswoman, and Patrick Pichette, a Canadian businessman and former C.F.O. of Google, as the three members of the Transactions Committee. The board also formally hired both Goldman and JPMorgan Chase to act as financial advisors for Twitter and the Twitter board to help them evaluate Elon’s bid for Twitter. One thing the proxy does not clarify is what the role of Allen & Co., the boutique investment bank, played in the Twitter deal. We know the bank was hired but not why; nor do we know what it did or is doing. (There is only one mention of the firm, which is known for its discretion, in the entirety of the proxy.)
Between April 15 and April 25, the Transactions Committee, its advisors, and the wider Twitter board started marching down the path that led to the April 25th deal to sell the company to Elon for $54.20 a share, in cash. The Twitter board adopted the Poison Pill, designed to get Elon to negotiate directly with the Twitter board and to reduce the threat that he would initiate a tender offer. The Transactions Committee then moved to firm up Elon’s financing for the Twitter deal. Where was that $44 billion going to come from? The committee also wanted to get the perspective of Twitter’s largest institutional investors. According to the proxy, both Taylor and Pichette reached out to Twitter’s largest institutional shareholders—Vanguard, BlackRock and Morgan Stanley Asset Management—to “understand” their “perspectives.” They probably got an earful, along the order of “take the money and run.” Taylor also called Elon and told him that the Twitter board was taking Elon’s offer “seriously.”
On April 21, Elon disclosed the first cut of his financing for the Twitter acquisition. Goldman and JPMorgan Chase assessed for the Transactions Committee the efficacy of Elon’s financing and began to evaluate whether his $44 billion offer for Twitter was fair to the Twitter shareholders, in part using the Twitter business plan and financial projections that Agarawal had updated. The committee asked the two banks to meet with Morgan Stanley, Elon’s financial advisor, to get more clarity about Elon’s debt and equity financing for the acquisition. That occurred on April 22. The next day, Goldman and JPMorgan Chase provided an update to the committee about the details and nuances of Elon’s financing, which obviously was the key component for how Twitter’s shareholders were going to get the $54.20 in cash that he promised. Also on April 23, Taylor had a conversation with Elon, along with a Goldman representative, during which Elon reiterated that $54.20 was his “best and final offer” and that he would be willing to go hostile, by starting a tender offer, if need be.
April 24 was a long day for the Twitter board and its financial and legal representatives, as they collectively waltzed toward the agreement to sell the company. Goldman and JPMorgan Chase shared their preliminary fairness opinions with the board attesting to the inevitable fact that, all things considered, Elon’s offer was fair to Twitter’s shareholders, in light of both Twitter’s possible standalone performance and the fact that no other bidders for the company had emerged. The board also grappled with the likely fact that absent a negotiated merger agreement with Elon, he “might imminently” commence a hostile offer for Twitter’s stock.
Nobody in the Twitter camp wanted him to do that. That same day, Elon delivered to the Twitter board a letter recommitting himself to the $54.20 offer and that his “strong preference” was to achieve a “negotiated transaction” with the Twitter board. During the board’s meeting, and after receipt of the new letter from Elon, Skadden Arps, Elon’s Wall Street law firm, sent over an initial draft of a merger agreement to the Twitter board. With the circulation of a merger agreement, the takeover was becoming increasingly real. The Transactions Committee authorized Simpson Thatcher and Wilson Sonsini to negotiate the merger agreement with Skadden.
Probably after an all-nighter, it all came together on April 25: The merger agreement for the $44 billion deal, in all its magnificent detail—including the reasons Elon could get out of the deal and how, somehow negotiated in around 24 hours—all ready for signature. (It always amazes me how quickly Wall Street lawyers can pull together a document to make a huge deal, even though it is not unusual.) Both Goldman and JPMorgan Chase made their fairness opinions final. The details of Elon’s financing commitments were once again reviewed and deemed satisfactory. The Twitter board then authorized that the merger agreement with Elon be executed. “Promptly following execution of the merger agreement, Twitter and Mr. Musk publicly announced the merger agreement and the merger.” Once again, all hell broke loose.
In the subsequent days, Elon revised his financing (May 4) and entered into a confidentiality agreement with Twitter so that he and his financial and legal representatives could get for the first time Twitter’s confidential information (May 5.) That same day, Elon disclosed publicly that he was having conversations with various Twitter shareholders, including Jack, about rolling over their Twitter shares into Elon’s private Twitter. (Saudi Prince Alwaleed has agreed to roll-over his nearly $2 billion stake in Twitter but Jack hasn’t yet.)
After the market closed today, Elon made a new filing with the S.E.C. in which he eliminated completely the margin loan tied to his Tesla stock and increased to a whopping $33.5 billion the amount of equity he had pledged to deal, either from his own pocket or from his buddies. (Has a single person ever before pledged that much equity to a single deal? I don’t think so.) By my reckoning, Elon now has $20 billion more of equity to raise.
Where it all goes from here is anyone’s guess of course, given Elon’s mercurial behavior. Lately, he’s been surprisingly restrained, at least about Twitter. He must be in negotiations with the Twitter board, which would be a good time to keep quiet. What might Elon do now? He could well try to cut the offer price for Twitter, which everyone seems to expect him to do, and which would require more disclosure in a revised proxy. Of course, this would risk that Goldman and JPMorgan Chase might find that a lower price for Twitter is no longer fair to Twitter’s shareholders from a financial point of view, which might then throw the whole transaction into turmoil.
So Elon is walking a bit of a tightrope here. If he gets too greedy, he risks blowing up the merger agreement and anything could happen then, including the start of the hostile tender offer that the Twitter board has been fearing, or the excuse Elon may have been seeking all along to walk away from the deal. It would be for the lawyers to determine whether Elon would have to pay the $1 billion walk-away fee if a lower offer is no longer fair and the deal blows up because of that. Not that $1 billion is particularly material to one of the world’s richest men. Still, it’s a billion dollars. I’m growing increasingly envious of Walter Isaacson, who is writing his new book about Elon. This is one rip-roaring tale.
But if the proxy statement makes anything clear, it’s that this story isn’t only about Elon Musk. It’s also about Twitter, a company whose board at this point holds little financial or emotional attachment to the company; whose co-founder wanted it to go private; which capitulated to Elon at first blush. Many have worried that Elon, if he consummates the deal, will turn Twitter into Silly Putty in his hands. In truth, it already was.