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Suppose you have a gripe with Twitter, like the status of an ‘edit’ function or a much more weighty question like the platform’s role in cyberspace free speech.
Elon Musk — with his newly-announced 9.2% stake in the social media company — is not your shake–up investor, experts say. At least not yet, they note.
In a Securities and Exchange Commission filing Monday, Musk announced his purchase of 73.49 million shares of Twitter. The news sent the company’s stock soaring, and people pondering what the ultimate plan was with the purchase by the world’s richest man. Musk is now Twitter’s large single holder of common shares, FactSet data shows.
After all, it’s a twist for the Tesla
TSLA,
CEO and co-founder has who’s been critical of the platform and once got in hot water with securities regulators over his 2018 “going private” tweet.
Musk’s told the world about his purchase in a piece of SEC paperwork implying a passive approach to a bigtime investment in a publicly-traded company.
He didn’t mention the stake — or the shareholder votes that come with it — in a brief, cheeky tweet after news broke of his purchase Monday.
Musk’s new 9.2% stake by itself does not give him any direct control of Twitter, said Tyler Gellasch, executive director of Healthy Markets Association, an investor trade group. “The question then becomes even if he doesn’t explicitly have direct control or formal control, will he seek to gain it or exercise it in some way? Given his high profile engagement on Twitter, it seems like he would.”
Musk revealed the stock buy on what’s called a Schedule 13G, instead of a Schedule 13D — that’s the document activist investors would traditionally use if they are taking at least a 5% and plan on pushing for corporate change.
Without getting into the bureaucratic complications, securities law says an investor doesn’t have to file the Schedule 13D if they “acquired such securities in the ordinary course of his business and not with the purpose nor with the effect of changing or influencing the control” of the company.
Still, Gellasch noted, “There’s a pretty big blurring of the lines between what’s passive today and what’s active tomorrow. The SEC rules really haven’t kept pace with the shifting nature of investors’ engagement.”
Just because Musk’s new investment is passive for now, it doesn’t mean he couldn’t change his mind turn active later with more paperwork and more purchases, said professor Cindy Schipani, who specializes in corporate governance at University of Michigan Ross School of Business.
And even if it’s not a formal bid for change, Schipani said Musk now has his widely-watched Twitter account to communicate to corporate brass — and likely his phone too. “A 9.2% investor probably could get the ear of somebody at the company , just to listen,” Schipani said.
“I wonder if it’s a message just reminding Twitter he’s out there with his financial wherewithal. It may simply be a message,” Schipani said — “or it may just be an investment.”
“In the past investors were mostly clinical and non-emotional (think Warren Buffett), today it seems investors feel like they are owed more than a rate of return,” said Tom Siomades, Chief Investment Officer at AE Wealth Management. “That’s what’s behind ESG investing. Musk is an extension of that, he feels that Twitter is infringing on free speech, and he probably wants to have an impact. He will use his money, power and prestige to exact change at the company.”
The stock in Twitter
TWTR,
which did not respond to a request for comment, closed at $49.97 on Monday, up more than 27%.
Year to date, Twitter shares are up more than 15%, thanks to the recent spike in value. A new CEO, Parag Agrawal, has led Twitter since November when Jack Dorsey, the company’s co-founder and CEO, stepped aside. Dorsey, now a member of Twitter’s board, has a 2.3% stake, according to FactSet data. The Dow Jones Industrial Average
DJIA,
and the S&P 500
SPX,
are down nearly 4% year to date.
“Even though the share is considered a “passive” stake in the company, Elon Musk is never a passive participant in anything he does,” said Alexandra Cirone, a professor at Cornell University’s government department. “Musk can now bring his viewpoint to the company in a way he couldn’t before, but it’s not clear to what extent Twitter will listen.”
Even if he ultimately tries to change the company’s policies or user experience, it’s not likely that would happen quickly at an established social medial company, she said.
“Even though Musk calls himself a “free-speech absolutist,” it’s unclear to what extent he knows how complex both information ecosystems and content moderation on social media are. Social media companies are private and for-profit, so users do not have the right to free speech,” Cirone said.
Social media platforms can create standards to keep users happy and engaged, Cirone said — “But it’s worth noting that many of the ‘free speech’ platforms, with perhaps the exception of Telegram, have struggled to compete with mainstream platforms.”
Two top executives in Truth Social, the social media site launched by former president Donald Trump’s company, Trump Media and Technology Group, have reportedly quit as the platform fights to gain traction, according to a Reuters report.
