Mask’s joining the Twitter board raises questions about the company’s plans

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On Tuesday, Twitter reported that Elon Musk was joining his board of directors. The day before, the CEO of Tesla and the richest man in the world revealed that he is the largest shareholder of the social networking company.

Also, to become Silicon Valley’s latest drama, investors are trying to figure out what it all means for Twitter.

Shares of Twitter jumped 4% on Tuesday after the board announced. Monday was the best day since the company’s IPO in 2013, which increased by more than 27%. But when it comes to Mask, markets are rarely rational.

“It’s nice when a company announces a profit – it seems much better when a company announces its relationship with Elon Musk,” said Howard Fisher, a partner at Moses & Singer in New York and a former lawyer with the Securities and Exchange Commission. . “[Musk] can’t improve performance, it can’t improve revenue, it can’t reduce liabilities, but the stock market rewards [Twitter]».

Regardless of the financial impact, and maybe not, one thing is clear: it would seem that one day Musk gained more influence over the campaign, which he regularly criticizes and which he uses to tweet about 80 million followers, including many devotees. Elon.

Mask’s intentions with Twitter are unclear, and it’s probably intended.

He had previously stated a policy of moderating content on Twitter, arguing that the campaign did not support the principles of free speech. Tesla’s CEO also urged Twitter to create an edit button (a common complaint in Twittersphere) and allow users to have more control over the tweets they see in their news feed.

“I suspect it will start relatively slowly, but then it will want to make big changes, probably more towards free speech,” said Yousef Squali, an analyst with Truist Securities who recommends buying shares of Twitter. “I don’t think he ultimately cares about user growth, etc.”

Twitter CEO Parag Agraval and co-founder Jack Dorsey welcomed Mask to the company’s board.

“He is both an ardent believer and a serious critic of the service, which is exactly what we need on Twitter and in the boardroom to make us stronger in the long run,” Agraval wrote on Twitter. “Welcome, Elon!”

Musk showed his ownership of Twitter shares through the SEC’s 13G form. This indicates a passive interest, which often means that the owner is not trying to control or influence the company.

But that may change. In the future, Musk may choose to be more involved and play a more aggressive role in the campaign. If he does, he will have to disclose it to the SEC in 13D form. In that case, he will have to state his intentions.

“The flock can become active at any time,” said Tom Hayes, chairman of Great Hill Capital. “I think Twitter is taking action, including it in the council, before it demands it.”

The company on social media has set some options for appointing Mask to the board, potentially limiting his influence. As long as Musk works on the Twitter board or 90 days after that, he cannot own more than 14.9% of Twitter’s shares either as an individual or as a member of the group, the statement said. Musk will serve as Class II director until 2024.

“I think they put such a condition because they don’t want to [Musk] have unfettered control over the company, ”Hayes said.

Twitter is no stranger to investor activists. In 2020, the company struck a deal with Elliott Management after the hedge fund managed to remove Dorsey from the position of CEO. The deal involved a $ 1 billion investment from private equity firm Silver Lake and awarded both Silver Lake and Elliott seats on Twitter.

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Wall Street analysts have already begun speculating on what Musk might be cooking for Twitter. More aggressive stock purchases? More seats on the board? What about full redemption?

“Use your imagination,” analyst Gordon Huskett Don Bilson wrote in a note to clients on Monday. We have to wait and see if “Dorsey likes the idea of ​​buying a Twitter Mask just like Jeff Bezos bought the Washington Post,” he said.

Hayes said he thinks Musk is unlikely to pursue something as dramatic as a shock or a private takeover.

“He now has a significant financial stake in the company,” Hayes said, adding that there was no reason why Musk would want to take over the company as long as Twitter “follows his ideas.”

Musk can still campaign for changes in company policy. Last month, he polled his followers on Twitter to see if the freedom of speech campaign was “strictly adhered to”.

“Given that Twitter is a de facto public city square, non-compliance with the principles of freedom of speech fundamentally undermines democracy,” he tweeted. – What to do?

Musk, who is known to have attacked journalists and others who criticize him and his campaign, has a vague definition of free speech. He also accused the SEC of harassment in a calculated effort to “cool” his right to free speech in overseeing his dealings with shareholders after a 2018 tweet in which he is believed to have secured funding to make the company private.

If Musk stays true to his word on free speech, any drastic change in Twitter in his image is likely to become a much more controversial platform, Squall said. The controversy tends to attract consumers but repel advertisers, which the board should be wary of, he said.

Twitter has suggested that Musk and other members of his board do not have the authority to set company policies. “Our political decisions are not determined by the board or shareholders,” a Twitter spokesman said in a statement to CNBC.

The spokesman added that the company’s board plays an important role in providing instruction and feedback “throughout our service,” but daily operations and decisions are made by Twitter staff and staff.

It is also unclear to what extent Musk will be present on the board. In addition to managing Tesla, Musk is also the CEO of SpaceX and Neuralink, a company that seeks to develop implanted brain chips.

Fisher, a former SEC lawyer, said Twitter management should be concerned that Musk is angering the financial regulator by pointing to his widely publicized dispute with the agency. Musk has a history of courting disputes and promoting his companies on Twitter while rejecting some SEC rules.

“If I were Twitter, I would worry about it getting the SEC’s attention,” Fisher said.

Musk did not immediately respond to a request for comment from CNBC.

WATCH: Elon Musk is a “Trojan horse” on Twitter, says Jim Kramer

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