SAN FRANCISCO — In August 2018, Elon Musk called Michael Dell for advice.
Musk, who was trying to take Tesla, his electric car company, private, asked Dell, who did the same with his eponymous computer company in 2013, about the process and the best lawyers to use for the messy transaction.
“I was really asking him – did he find being private good?” Musk recalled in a deposition about Tesla’s effort. “Did he regret becoming private?
Dell warned Musk it was “a very difficult process” but was glad he did it, according to court documents.
Now Musk, who didn’t end up taking Tesla private, is doing it with Twitter. As part of its $44 billion acquisition of the social media service, which closed on Thursday, it is delisting the company’s shares and removing them from the hands of public shareholders.
Making Twitter a private company gives Musk some advantages. Unlike publicly listed companies, private companies are not required to publish quarterly performance information. They are also subject to less regulatory scrutiny and can be controlled more tightly by an owner. This means that Musk can take care of Twitter, including changing the platform’s content rules, finances and priorities, without having to consider concerns from the investing public.
“It’s hard to run a public company if you think you should be the one running it and you’re not open to other people’s opinions, like shareholders,” said Boston College professor Brian JM Quinn. Law School. “Taking it private, you feel like you have a lot more flexibility.”
Here’s how Twitter is about to change as a private company under Musk.
How does Musk take Twitter private?
As part of the Twitter purchase, Musk is merging the social media company with X Holdings, a corporation he created in Delaware to manage the deal. X is buying all of Twitter’s shares and will control the service, and Musk will control the holding company.
What happens to Twitter shares?
Twitter will be delisted from the New York Stock Exchange and its shares will no longer trade on public markets starting Nov. 8, according to a securities filing. In September, Twitter shareholders approved the sale of the company to Musk and agreed to sell their shares to him for $54.20 per share. Investors will be able to claim the cash value of their shares.
What Happens to Twitter’s Board of Directors?
With the conclusion of the agreement, Twitter’s board of directors will dissolve and its nine members will no longer preside over the company’s operations. Musk will most likely appoint a new board made up of friends and investors who helped fund the acquisition. The new board will be tasked with charting the trajectory of Twitter as a private company.
“It will still be required by law to have a board of directors, and that would likely include Elon Musk and some of the other big equity investors in the company,” said Columbia Law School professor Eric Talley. “I expect Mr. Musk to run it as a somewhat friendly dictatorship.”
What happens to senior Twitter executives?
Musk has already started cleaning up, with several senior Twitter executives being fired on Thursday.
Among the executives who have been fired is Parag Agrawal, the CEO of Twitter, who publicly and privately clashed with Musk. When Musk complained this year that Twitter had an unchecked spam problem, Agrawal tweeted to refute his claims. Musk responded with a poo emoji.
At another point, Agrawal texted Musk, telling the billionaire his criticism was hurting Twitter, according to a court filing.
“It’s a waste of time,” Musk shot back.
Other executives who were fired include Ned Segal, Twitter’s chief financial officer; Vijaya Gadde, the top legal and policy official; and Sean Edgett, the general counsel.
Under the merger deal, Agrawal was to potentially receive a golden parachute worth around $60 million, with Segal receiving $46 million, while Gadde would receive around $20 million. It was not immediately clear if Musk intended to make the payments.
What about Twitter employees?
Twitter has approximately 7,500 employees. Some of them have worried for months about selling the company to Musk. Many could face layoffs or job changes when their new owner takes over.
Their remuneration is also subject to change. Employees usually receive stock options in the company. But, with the write-off, employees would have to be cashed in for the shares they already own and be paid with cash bonuses in the future, instead of the stock options they were to receive, according to the merger agreement. . Some employees fear that Musk will not honor the agreement.
“Most of these employees have been at a public company and are used to public option grants, which are liquid,” Quinn said. “They’ll have to find another Silicon Valley-friendly way to keep people around.”
What financial pressures will Twitter face as a private company?
By going private, Twitter will avoid some public scrutiny since it will no longer be required to make quarterly disclosures about the health of its business. This will give Musk some flexibility when switching Twitter.
But he will face pressure from the banks that lent him $12.5 billion for the deal to start paying off his debt. The cost of repaying these loans could reach $1 billion a year, according to financial analysts.
“He has less public pressure, but he has a lot of private pressure from the banks to make the payments,” Quinn said. “Like almost every other private equity firm, it will need a very operations-focused manager who is lean and able to pay the day-to-day bills.”
Musk also took about $7.1 billion from equity investors to push through the deal. He may also face pressure from those investors, who might expect him to take Twitter public at some point so they can recoup their investment.
In some private transactions, owners have chosen to sell off branches of their businesses to pay their debts. Musk might choose to do the same on Twitter.
“It’s conceivable that certain aspects of Twitter could potentially be cut, sold, or spun off to raise funds that could be used to pay down debt,” Talley said. “Twitter is kind of down to their main mission right now. They should get a little creative.