One of corporate America’s most notable loudmouths has acquired the largest stake in the home of online loudmouths: Twitter, the microblogging platform. The multi-billionaire Elon Tesla, who is worth $288 billion, is the subject of the question. Twitter revealed that Musk was joining its board of director the day following his announcement. Questions remain as to what Musk’s role in the company. Here’s more about what his stake in Twitter could mean, and what his position on the board would have the ability to potentially do.
What does it mean to be a passive investor
The initial news that Musk had acquired 9.2% of the company’s stock indicated he would be a passive investor. He would be a passive investor and not participate in company management. He would also be just like other Twitter stockholders who hope to increase the share price. That “passive” category covers most investors in most Wall Street stocks.
Musk was also revealed to have been a board member, which made him an active investor, shortly after his stock purchase. But there was one caveat. He can’t increase his holdings of Twitter stock above 14.9% until his term as a director ends in 2024, Zino says. “Any type of all-out buyout is off the table for now,” he says. Musk might buy the majority or all of the shares. Either way, he’d be in control of the company. Experts say that this would likely mean the company still having a board.
The “for now” part of the possible takeover story is key because Musk surely has the funds to purchase the entire enterprise when the restrictions are over. Zino doesn’t rule out a complete take over eventually.
Musk in action:
Musk’s position on the board of directors will let him—along with the other 11 directors, including co-founder Jack Dorsey and CEO Parag Agrawal—steer the company’s business strategy and make decisions on financial matters. The board’s role also involves making decisions on what to pay the CEO and whether to renew executive employment contracts.
In short, being a director “allows [Musk] to pick up the phone and speak with the management team,” Zino says. “There’s not a management team that won’t take that call.”
Musk stated that he would like to create a better social media platform. However, it is far easier for him to modify an existing platform than to build one from scratch. Experts say that while he may be limited by the rest of the board, he’s likely to skirt close to the edge of that boundary. “He has an incredible power to push things around,” says David Morrison, senior market analyst at online trading platform Trade Nation in London. “He would like to change it to be better for him. Whether that is what everyone else thinks is a different matter.”
Musk suggested that the microblog should include an editing button. That would put the site in line with Facebook’s practice.
Musk’s behavior on Twitter
Musk is famous for challenging boundaries. In 2018, he declared on his Twitter feed that he’d take Tesla private at a high stock price and had the funding ready to do so. But that didn’t happen. The Securities and Exchange Commission (SEC), the regulator of the stock market, filed suit against Musk. Musk eventually agreed to have future tweets prewritten and approved by lawyers from the company, while arguing that the regulator restricted his freedom of speech.
Twitter’s inconsistency with muting certain speech has been also criticized. Musk may decide to end this apparent muzzling of different views, considering his love for unfettered communication.
Morrison also says Musk seems to enjoy being minor rascals. “He’s been a loudmouth in the past, but more recently, it’s more mischief,” Morrison says. This snarky behavior often revolved around how corporate communication can be done on Twitter and similar platforms. Although the SEC says it’s okay to share financial information or any other information that might affect stock prices on social media platforms, companies must inform beforehand which platforms they will be using. Musk is still pushing the limits when it comes down to SEC regulations. “He and the SEC are having these running battles.”
In the recent instance, Musk organized a poll on Twitter soon after he’d already purchased his 9.2% stake in the company. According to the SEC, he had to disclose his purchase earlier. SEC regulations require investors to be notified of any purchase or sale of a substantial stake in a company. These details help other investors make well-informed decisions regarding whether they should buy stock or not.
CNBC reports that Musk could be fined $100,000 for his infraction. That’s not much to pay for some mischief if you are Musk.
What does the move for Twitter mean?
Musk’s impact has been significant on Twitter. Twitter stock, which has historically been disappointing for investors, consistently lags behind the market and Meta, Meta’s direct competitor. “It has been this highly underperforming asset essentially since it became public,” says Angelo Zino, technology analyst at CFRA. “They’ve had an extremely difficult time in terms of monetizing the platform – essentially, they can’t find enough advertising money.” The platform gets approximately nine-tenths of its total revenue from selling advertising.
The company’s market performance reflects the lackluster state of the underlying business. It lost over 7% between the time Twitter stock was listed on stock exchanges and earlier this week. According to Yahoo data, this compares with Meta’s gains of more than 370% and 260% respectively for the tech-heavy Nasdaq Index over the same time period.
The stock’s price surged Monday after Musk purchased 9.2% of all outstanding Twitter shares. This was the largest daily gain in the stock’s history since 2013. The move inspired some investor optimism that Musk’s stake might invigorate the ailing company. Further news that Musk had taken a seat on the company’s board helped reinforce the sunnier outlook. His stock sway is likely to give him even more power with the company’s executives.
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