Editor’s note: Veteran Raleigh-based tech attorney Jim Verdonik, founder of which is dedicated to exploring Freedom issues, and co-founder of Innovate Capital Law, discusses Elon Musk becoming Twitter’s largest stockholder and offer to take Twitter private. This is the first of two parts. The second will focus on free speech issues and Big Tech. Verdonik has been actively involved over more than two decades in helping Triangle companies go public or be sold.
RALEIGH – The country is abuzz about Elon Musk’s move to take control of Twitter. An active Twitter user himself, Musk is now Twitter’s biggest shareholder. He recently turned down a Board seat, has made an offer to buy Twitter and take it private and has indicated his intention to sell if his buyout offer is rejected because Twitter isn’t a good investment unless it changes.
With a political philosophy that tends toward libertarian and a fondness for old fashioned concepts that value a free marketplace of ideas, Musk is a nightmare for Twitter’s totalitarian management team that pulls the cancel trigger at the slightest variation from “Twitter Think.”
Let’s examine Elon Musk’s very public battle with Twitter in two contexts:
- Tech media stock market factors that made Twitter the logical target
- Free Speech Issues
It’s the Low Market Cap – Stupid
Suppose you want to own a business that dominates its market, but you don’t want to spend years developing the technology and building a customer base. You don’t want to pay too much. And you want to influence public opinion.
What do you do?
- You look for an underperforming public company.
- Buy a controlling interest.
- Fire the management team that has been chasing away users and opened the door to competition.
- Improve the product.
- Attract more users.
- Make more money.
- Open the platform you buy to all users who have diverse viewpoints
This seems to be the strategy Elon Musk is using in his very public battle with Twitter.
Twitter is the poor relation in the Tech Media world. Its recent market cap was only $35 billion. Compare that to $2.7 trillion for Apple, $2.1 trillion for Microsoft, $1.7 trillion for Google, $1.5 trillion for Amazon $624 billion for Facebook (Meta) and $156 billion for Netflix.
Elon Musk’s own Tesla has a market cap of about $1 trillion.
And yet, everyone quotes what people say in Tweets. Tweets drive news stories in much of the other media. Clearly Twitter’s PR impact is a lot bigger than its economic performance. So, Twitter became the bargain basement way Elon Musk to buy into the media market.
Lack of management stake in Twitter
Another factor that made Twitter a target is that the people who run Twitter own so little of its stock. Twitter’s 2021 proxy statement show all management and members of the Board of Directors beneficially owned approximately 2.5% of Twitter’s voting stock. And founder Jack Dorsey owned about 90% of that small total. The other members of the management team and Board members owned less than a half percent combined.
Simply put, the decision makers at Twitter have very little interest in its economic performance, which may explain their focus on using Twitter to promote their political ideology at the expense of building Twitter’s market capitalization.
Finally, unlike Facebook, Twitter has only one class of Common Stock. All shares have equal voting power. Mark Zuckerberg cemented his control over Facebook by giving himself shares that have ten votes compared to one vote per share owned by the public.
In the survival of the fittest world of stock markets, Twitter is the weakest and slowest. The weakest and slowest usually become targets. For these reasons, it was a no brainer to choose to target Twitter if you want to buy the biggest media voice for the least about of money.
Part Two: The free speech issue and Big Tech