According to a filing on Monday, Elon Musk just bought 9.2 percent of the Twitter stock, making him the company’s largest stakeholder.
Twitter (TWTR) shares jumped 22 percent in early trade after the transaction was announced. Musk did not say how much he paid for the shares, but he’s holding was worth $2.9 billion as of Friday’s closing, and $3.5 billion following the early Monday rise.
Musk’s filing made no mention of the purchase’s purpose or any future ambitions for the firm. However, he has previously been a vocal opponent of Twitter’s regulations. He stated last month that he was “seriously considering” developing a new social networking site.
“Given that Twitter functions as the de facto public town square, failure to adhere to free speech norms profoundly weakens democracy,” Musk said last month in a tweet. “How should we proceed?”
When an investor purchases 5% or more of a company’s stock, the transaction must be disclosed in Securities and Exchange Commission filings. Although a holding of less than 10% in a firm is deemed “passive” by Wall Street, it might indicate Musk’s desire to play a more active role in how Twitter is operated. This is one of the elements causing other investors to acquire shares and drive up the price on Monday morning.
“I believe he plans to get active and drive change at Twitter,” said Dan Ives, a Wedbush Securities tech analyst. “This is a shot across the bow to Twitter’s board of directors and management team to begin negotiations.”
Even if Musk does not attempt to change the way Twitter functions, Ives believes that his massive investment may drive other activist investors to take a position in the firm.
“He’s going to affect the path of Twitter one way or another,” Ives said.
According to Ives, it is unlikely that Musk or anybody else will be able to start constructing a new, rival platform from scratch. As a result, it makes more sense for him to strive to modify Twitter’s procedures.
A request for comment on Musk’s investment was not immediately responded to by Twitter.
Musk is one of the most popular tweeters.
Musk has much more Twitter followers than any other CEO, with 80 million. And he is a regular tweeter, using it as the primary means of distributing news about Tesla (TSLA) and SpaceX, the two firms he oversees, neither of which has a typical public relations department.
His tweets, on the other hand, have gotten him into difficulty at times.
Musk announced in 2018 that he would take Tesla private at a price of $420 per share and that he had “financing secured” to do so. It was later revealed that, while he had conversations about sponsoring such a candidacy, the cash was far from solid.
Musk resolved the dispute by resigning as Tesla’s chairman, albeit he remained CEO. Both he and Tesla paid a $20 million fine, with Musk repaying the business by acquiring an extra $20 million in Tesla stock.
He also committed to having any future tweets containing critical information about the firm vetted by other Tesla officials before being sent. The SEC has questioned whether Musk is complying with that condition of the deal, and Musk and the agency are arguing in court about it.
Twitter’s recent turmoil.
Last November, Twitter founder Jack Dorsey abruptly stepped down as CEO, without the kind of advance notice that is generally given with this type of leadership transition. He was followed by Parag Agrawal, who had previously served as chief technology officer.
Musk has already indicated his support for Dorsey when he has faced criticism from some shareholders. When someone else noted that Google, Microsoft, Adobe, IBM, Palo Alto Networks, and Twitter are all managed by CEOs who grew up in India, Musk responded with his own tweet: “USA benefits enormously from Indian talent!”
However, only a few days later, he posted a meme comparing Agrawal to former Soviet tyrant Joseph Stalin and depicting Dorsey as a former Stalin certain the dictator had been slain.
“Musk has previously signaled that he did not agree with Agrawal’s appointment and that he wishes some adjustments,” Morningstar analyst Ali Mogharabi wrote in a client note. “This raises questions about how Agrawal and the firm will respond to the firm’s new largest shareholder.”
Unlike Musk, who owns more than 20% of Tesla, Dorsey’s position in Twitter is small, accounting for only 2.3 percent of the company’s shares.
Musk does not need to become CEO of Twitter to urge the firm to modify its policies, according to Ives. And it’s not really obvious what improvements he wants to see.
He recently conducted a Twitter poll in which he asked his followers if they feel Twitter strictly conforms to the idea of free speech — 70% replied no — and another in which he asked whether its algorithms should be open source — 83 percent voted yes. Both surveys had almost a million replies.
However, the changes Musk may advocate for at Twitter may be very different from those sought by a traditional activist investor, who normally attempts to increase a company’s stock price.
In the past, activists have targeted Twitter.
Twitter has previously faced opposition from activist investors. Hedge fund Elliott Management campaigned for platform changes in 2020, including maybe driving Dorsey out or making him give up a separate CEO post he had at payments technology startup Square (SQ). Dorsey withstood the test but opted to depart Twitter more than a year later.
Twitter has become a target for critics on all sides of the political spectrum. Some say the platform did not do enough to address disinformation concerning Covid-19 and suspected electoral fraud. Others say it was inappropriate to prohibit some points of view, particularly the exclusion of former President Donald Trump.
Twitter’s market valuation of $31.5 billion is a fraction of what firms like Tesla or rival social media behemoth Meta, which owns Facebook and Instagram, are worth. Furthermore, Twitter’s stock has lost more than half of its value since February 2021, when the company disclosed that its efforts to combat false information around the US elections cost the network some users.
Still, Ives believes it would be too expensive for Musk to acquire Twitter on his own, given that the majority of his wealth is invested in Tesla and SpaceX stock. According to Forbes, Musk is the world’s richest individual, with a net worth of $288 billion.
“He’d have to work with private equity,” Ives added. “It’s not like he could do it himself.”