Let’s hear it for
board of directors. Given the considerable drama surrounding
bid for the company, it is easy to overlook the board’s skillful handling of his approach.
In early April, when Mr. Musk initially disclosed his acquisition of slightly more than 9% of the company’s shares, the board responded by offering him a seat. This elegant move acknowledged the right of a major shareholder to influence the company’s direction and also would have hindered Mr. Musk’s ability to criticize the company publicly. That he ultimately turned this offer down doesn’t mean the board was unwise to offer it.
Next, when Mr. Musk announced his offer to purchase the company at $54.20 a share, the board adopted a poison pill. This move was reasonable, given that he didn’t explain how he would finance his offer, and it pressured him to negotiate with the board instead of moving directly to a tender offer. Forcing a notoriously mercurial bidder with questionable financial capacity to deal with the board—which has the ability to negotiate deal terms that protect shareholders and others—was in line with its fiduciary responsibility.
Poison pills can be misused by intransigent boards to impede hostile acquisition offers that could be in the best interests of shareholders. In Twitter’s case, the board could have justified its opposition to Mr. Musk’s bid for various reasons: his shortsighted disregard for advertising revenue, his unworkable aversion to content regulation, or a potential exodus of valuable employees.
Twitter’s board, however, made clear this week it isn’t rigidly opposed to change. Once Mr. Musk disclosed that he had secured financing for his offer, and after the board heard from its own financial advisers that his offer price was attractive from a financial point of view, the board approved the deal. It did so, however, only after negotiating two significant terms: a $1 billion breakup fee—which would protect Twitter’s shareholders if Mr. Musk walks away from the deal—and cash-outs of employee stock-option grants—which presumably will be appreciated by Twitter employees who would otherwise have been left with illiquid shares of a private company whose owner may not make profitability a priority.
Public company boards have an important role to play in the crucial moments of a corporation’s life. There will be considerable uncertainty about Twitter’s future if Mr. Musk’s acquisition closes, but there is little doubt that Twitter’s board handled his approach skillfully, enhancing value for both the company’s shareholders and its employees.
Mr. Lefler is a partner emeritus at the Los Angeles law firm Irell & Manella LLP.
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Appeared in the April 28, 2022, print edition.