TheCorporateCounsel.net

It’s impossible to know the internal machinations of any sensitive board decision – but there sure is a lot of speculation about how Twitter’s board arrived at approving Elon Musk’s (initial & only) offer to buy that company. A lot of commentary stems from statements made at an all-hands meeting. In that meeting, the company’s CEO emphasized that the board had to act in the best interest of the shareholders, and determined this offer was the best they could do:

As I’ve said, the board decides based on two factors. We act in the interest of our shareholders and look for value for them in the long term. Our job is to think about the price, and consider any offer on the table. And we compare that against the intrinsic value of the company based on the future-looking outlooks we have financially.

We get a lot of advice from several lawyers and bankers in the process … And when we looked at all the information and all of the data, every one of us concluded that based on our fiduciary responsibility … this offer at the price it ended up at was in the best long-term interest of our shareholders.

In his “Money Stuff” column yesterday, Matt Levine highlighted how this is a weird thing to hear after so much emphasis on stakeholder capitalism the past several years. Twitter’s leaders didn’t sign the Business Roundtable’s 2019 statement on the purpose of a corporation, but even if they had, would it have changed this outcome? Matt notes:

So if Twitter’s board had said “Twitter is not worth $54.20 per share and never will be, but we declined Musk’s offer anyway because we think it is bad for users and the product,” that would have been at least a risky move. But if it had said “we declined Musk’s offer because we think it is bad for users and the product, and we think that if we continue to improve the product and user experience then in the long run this obviously important social network should be worth more than $54.20 per share,” that would have been a defensible position even if, like, three-year earnings projections did not really support a $54.20 price.

It would help, in making that case, if Twitter’s board and managers had a long-term plan. What is strange here is that the richest person on earth came in out of the blue with a not-particularly-preemptive offer to buy a service that he is obsessed with and that seems crucial to his success. Hearing that, you might think things like “huh this product must be pretty valuable.” You might sit down and try to think of ways to extract value from it, other than selling it to Musk at the first price he proposed. Twitter’s board had no ideas.

One view is to say that the Twitter deal shows that the BRT statement didn’t change anything. Another view is that it makes long-term strategy even more important.

For more on Elon’s various deals, make sure you’re subscribed to our free DealLawyers.com blog – John is tracking fiduciary duties, merger agreement terms, and more.

– Liz Dunshee