Twitter going private under Musk's ownership poses challenges

Twitter going private under Musk’s ownership poses challenges

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Twitter going private under Elon Musk’s ownership does have a number of advantages for the billionaire, including fewer regulatory requirements and no need for quarterly earnings reports. But the route is not without its challenges …

Twitter going private

The New York Times reports that Musk had sought the advice of Michael Dell – who took his own computer company private back in 2018 – in regard to Tesla. Musk decided against doing it for the EV company, but Twitter is going private as part of the acquisition. That will see it delisted from the New York Stock Exchange.

Dell told him that the process had been worth it, but warned him that it’s “a very difficult process.”

Running the company as a private business has obvious appeal to Musk, who wants to be free to do his own thing without having to worry about what shareholders think.

Unlike publicly traded companies, privately held firms do not have to make quarterly public disclosures about their performance. They are also subject to less regulatory scrutiny and can be more tightly controlled by an owner. That means Mr. Musk can make over Twitter — including tweaking the platform’s content rules, its finances and its priorities — without having to consider the worries of the investing public.

Outgoing execs due millions in payouts

The deal has seen the existing board of directors dissolved, and Musk will be mostly free to choose his own directors – though his co-investor banks will doubtless want representation. But Columbia Law School professor Eric Talley says there is little doubt about how the company will be managed.

I expect Mr. Musk will run it as a somewhat friendly dictatorship.

Musk has already fired several execs, though they won’t be hurting too much.

Under the merger agreement, former CEO Parag Agrawal was potentially set to receive a golden parachute worth about $60 million, with CFO Neg Segal to receive $46 million, while legal head Vijaya Gadde would receive about $20 million.

Staff retention and hiring could be challenging

Initial reports suggested that Musk planned to slash as much as 75% of the workforce – something he has since denied. But there is no doubt that there will be large-scale cuts.

Musk would likely be happy to see part of this happen through attrition, but the report warns that he may struggle to hold on to some of the staff he does want to retain, and to bring new hires on board.

Employees typically receive stock options in the company. But, with the delisting of Twitter’s stock, employees are set to be cashed out for shares they already have and to be paid with cash bonuses going forward, instead of the stock options they were scheduled to receive, according to the merger agreement. Some employees have worried that Mr. Musk may not honor the agreement.

“Most of these employees have been in a public company and are used to public option grants, which are liquid,” said Boston College Law School professor Brian J.M. Quinn. “They will have to come up with some other Silicon Valley-friendly method of keeping people around.”

His banks and co-investors will want to see a return

Musk didn’t have enough cash on hand to make the purchase outright: He had to borrow $12.5B from banks, and raise a further $7.1B from co-investors.

Those banks will expect to see repayments on both capital and interest, and analysts have suggested that the cost of servicing those loans could amount to a billion dollars a year. Co-investors will also want to know how they will see a return on their cash.

Photo: Daniel Oberhaus/CC4.0

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