Let’s hear it for Twitterit is
Board of Directors. Given the considerable drama surrounding Elon Musk’s bid for the company, it’s easy to overlook the deft management of his approach by the board.
In early April, when Mr. Musk initially announced his acquisition of just over 9% of the company’s shares, the board responded by offering him a seat. The elegant move recognized a major shareholder’s right to influence the company’s direction and would also have hampered Mr. Musk’s ability to publicly criticize the company. That he ultimately turned down the offer doesn’t mean the board was unwise to offer it.
Then, when Mr. Musk announced his offer to buy the company at $54.20 per share, the board adopted a poison pill. This decision was reasonable, given that he did not explain how he would finance his bid, and it prompted him to negotiate with the board of directors instead of going straight to a takeover bid. Forcing a notoriously mercurial bidder with questionable financial ability to deal with the board — which has the ability to negotiate deal terms that protect shareholders and others — was consistent with its fiduciary responsibility.
Poison pills can be misused by hard-line boards to prevent hostile takeover bids that might be in the best interests of shareholders. In Twitter’s case, the board could have justified its opposition to Mr. Musk’s bid on a variety of grounds: his short-sighted disregard for ad revenue, his impractical aversion to content regulation, or a potential exodus. valuable employees.
Twitter’s board, however, made it clear this week that it was not rigorously opposed to the change. After Mr. Musk revealed he had secured funding for his bid, and after the board heard from his own financial advisors that his bid was priced financially attractive, the board of directors approved the agreement. However, he did so only after negotiating two important terms: a $1 billion severance fee – which would protect Twitter shareholders if Mr. Musk walks away from the deal – and the cashing out of stock awards. employee stock options – which are likely to be appreciated. by Twitter employees who would otherwise have found themselves with illiquid shares of a private company whose owner might not make profitability a priority.
The boards of public companies have an important role to play in the crucial moments of the life of a company. There will be considerable uncertainty about Twitter’s future if Mr. Musk’s acquisition goes through, but there’s no doubt that Twitter’s board has skilfully managed its approach, increasing shareholder value. of the company and its employees.
Mr. Lefler is a partner emeritus at the Los Angeles law firm Irell & Manella LLP.
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Appeared in the April 28, 2022 print edition.