Twitter’s CEO, founder and chair all swore up and down that they wanted Elon Musk to be their boardroom buddy. But despite these glad-handing professions of bonhomie, things turned hostile last week, and that’s never something that California’s feel-good tech industry likes to see.
Hostile takeovers are rare in tech. AT&T bought NCR with a hostile tender offer but ended up spinning it off. IBM’s hostile bid for Lotus turned friendly. Oracle bought PeopleSoft in a deal that, 18 years on, still reverberates in the Valley.
With so few precedents, even if Musk’s offer to buy Twitter were a conventional takeover, we’d be a little perplexed. But Musk being Musk, we’re completely unmoored here. A corporation seeking to take over another company generally wants to add its operational and technological distinctiveness to its own. Corporate raiders — sorry, “activist investors” — generally care little for the target except that it’s mismanaged and undervalued and there’s a buck to be made; they want to buy low and sell high, preferably as fast as possible.
Musk isn’t bringing anything to the table except his demonstrably bad ideas for running Twitter. And there’s no long-term plan here: If he succeeds in buying Twitter, will he just keep it forever?
Let us take a second to picture a mash-up of “Succession” and “The Expanse,” with Musk’s kids from his first marriage and X Æ A-12 and Exa Dark Sideræl feuding over control of Tesla, Twitter, SpaceX and the Mars colony. That sounds kind of cool. Can’t wait to see the bidding war for rights between Amazon-MGM-Netflix Prime Studios and Apple Disney+. But I digress.
Whatever the goal, hostile deals in tech rarely amount to much. “Hostile takeovers almost never succeed in high tech because the key people are automatically alienated from the acquirer,” academics Saikat Chaudhuri and Behnam Tabrizi wrote in a 1999 piece for the Harvard Business Review. That dynamic remains true today.
Look at the aftermath of Oracle-PeopleSoft: Oracle bragged about how many application-software contracts it retained. But the strategic logic of combining application and database software sales was upended by the cloud. PeopleSoft CEO Craig Conway, who strenuously fought the deal, soon after joined the board of an up-and-coming enterprise company called Salesforce.com. PeopleSoft founder David Duffield and Aneel Bhusri, a key executive, started Workday, which is now the top HR software vendor.
If Musk succeeds — and that’s a big if — Twitter could face a major brain drain. That may be fine with Musk, if he doesn’t care about Twitter’s value as a company or its ability to innovate. He may just hire people willing to do his bidding, but can they actually run Twitter? The company has struggled to report consistent operating profits.
Is Musk willing to subsidize a money-losing public town square? And how will he compensate those employees? Without a publicly traded stock as currency, Twitter will likely have to shell out considerably more cash. Rivals’ recruiters will have a field day.
Back to that big “if.” Musk has about as much funding secured as he did when he claimed he could take Tesla private in 2018. He said Thursday that he had enough “assets” to buy Twitter, but assets aren’t cash. Musk owns about 172 million shares of Tesla, but according to the company’s most recent proxy statement, he had pledged 88 million shares as collateral to “secure certain personal indebtedness.”
Company rules limit directors and executive officers to borrowing only up to 25% of the value of their Tesla shares. It’s not clear how much more borrowing power Musk has. (The sharp run-up in Tesla’s stock may explain how Musk has been able to borrow against so much of his holdings already.)
What happens next? It’s possible this deal could become technically friendly, though Musk has characterized his $54.20-a-share deal as his “best and final offer,” and Twitter’s board has said it will adopt a poison pill defense against him.
Even if it’s friendly in form, it’s hard to see how Twitter’s workforce will take it as anything but hostile. Musk has kept his automotive workforce from organizing, but Twitter employees may decide they need to band together against their would-be overlord. Wouldn’t it be a hoot if Musk had a hand in creating the first big tech union?
