Last week, when many of us were shopping on Amazon or perhaps booking plane tickets for summer vacation, Elon Musk showed interest in buying social media platform Twitter for 44 billions of dollars. As of this writing, Musk’s acquisition is nearly complete, and The Wall Street Journal reports that Musk has sold approximately $4 billion worth of Tesla stock in the past two days to help fund the acquisition. .
Let’s discuss the events of the Musk-Twitter engagement as they unfolded, as they offer valuable insight into legally defensible maneuvers in business practice, while also providing insight into the era we live in – this what I call the era of billions of new technologies. (HAVE). By NTB, I mean the fortunes generated by technologies that have the potential to change the way we live as humans or have already changed the way we live. This includes companies that innovate and create social media networks, electric vehicles, accessible space travel, and cutting-edge medical innovations. Musk’s own fortune comes from new technologies like these.
Let’s first look at the precursors to the Musk-Twitter engagement. According to Forbes magazine, Elon Musk with a fortune of 273 billion dollars is the richest man on our planet. Initially, what began as a purchase of a substantial portion of Twitter stock by Musk, led to Twitter’s offer of a board seat. This was followed by Musk’s rejection of the board seat due to the conditions attached. Subsequently, Musk declared his intention to buy Twitter.
When Musk offered to buy the company at $54.20 per share, the board opted for a poison pill. A poison pill in commercial law is a defense strategy used by a target company to prevent or deter a potential hostile takeover by an acquiring company. Often this gives shareholders the right to purchase additional shares at a discount, thereby diluting the potential stake of the new or hostile party.
As the Supreme Court explained in Pramod Jain v Securities and Exchange Board of India (2016), “a hostile takeover helps unlock hidden value in shares and puts pressure on management to work effectively. On the other hand, it has the potential to unduly disrupt the normal functioning of a target business. Thus, there is an indisputable need to regulate the process of acquisitions and takeovers in the post-liberalization era after 1991.” The Supreme Court further observes that “poison pills make takeovers unviable for the acquirer by making the unattractive acquisition cost”. In general, poison pills are also called shareholder rights plans. Such a plan is issued by the board of directors of the company being acquired.
Musk’s offer to buy Twitter is generous. Twitter shares are trading well below the billionaire’s proposed price. So the board was rightly excited about the purchase. However, when the board officially learned from Musk that he had secured the required funding for the deal, he insisted on two important conditions. Both terms are a $1 billion severance fee to protect Twitter shareholders if Musk walks out of the deal and if the deal goes through, then employee stock option withdrawals. The board has obviously prepared well to secure the long-term interests of the company. Finally, on April 25, Twitter’s board accepted Musk’s offer, and it will go private after approval by regulators and shareholders.
As that deal comes to fruition, ownership of Twitter won’t be Musk, 50’s greatest accomplishment. Born in South Africa, Musk is the CEO of three innovative companies that have secured his NTB – SpaceX, Tesla and Neuralink. Given his age, he clearly has many decades of entrepreneurship and innovation ahead of him. Each of these companies is tackling new frontiers of science and technology. What are these companies doing? SpaceX was founded by Musk in 2002 to enable the colonization of Mars. SpaceX manufactures the Falcon 9 and Falcon heavy launch vehicles. On April 26, a day after Twitter’s board accepted Musk’s offer, a SpaceX launch vehicle, consisting of a two-stage Falcon 9 rocket, propelled the Dragon spacecraft carrying 4 NASA astronauts and a European astronaut in space.
According to NASA, the crew will conduct a scientific expedition in microgravity aboard the space station. Since 2020, SpaceX has launched five flights with NASA astronauts. On April 18, a SpaceX Falcon rocket was used to successfully launch a force of US spy satellites from the company’s Vandenberg Space Force Base in California.
The Musk company that has the potential to transform transportation for humans is electric vehicle maker Tesla. The New York Times reports that in 2012 Tesla delivered 2,650 cars. At the end of 2021, Tesla had a 70% market share in light electric vehicles in the United States and had delivered 936,000 vehicles worldwide. Neuralink aims to develop implantable brain-machine interfaces.
Whether the Twitter-Musk deal goes through or not, it’s clear we’re living in the age of NTB. More and more acquisitions will be attempted by self-made and innovative billionaires who will seek to acquire and transform publicly traded companies into private entities. Challenges will emerge from these acquisitions. For example, in the challenges of the Musk-Twitter acquisition to secure free speech, the regulation of fake news, and Musk’s stated goals of ensuring open access to the algorithms they rely on. It remains to be seen whether the law in all its facets – constitutional law, commercial law and technology law – meets the challenges posed by the acquisition ambitions fueled by NTB.
The author is a Senior Advocate at the Supreme Court of India.