If Elon Musk and Twitter have their way, the company will soon be private and under his control.
Probably the most obvious immediate change would be the delisting of Twitter shares from the New York Stock Exchange. But the company would also likely be freed from having to provide regular updates on its business to US regulators and Wall Street.
An important change for Twitter users is that the company would likely have more freedom to make important or unpopular changes. That’s because he wouldn’t have to worry about a potential backlash from Wall Street.
Here’s a look at what it means for a company to go private.
WHAT WILL HAPPEN TO HIS STOCK?
If the merger goes through as expected, Twitter investors would receive $54.20 in cash for each share they own. These shares would then be canceled and cease to exist.
WHAT DIFFERENCE DOES IT MAKE?
Twitter probably wouldn’t have to file documents with US regulators every three months to show how much money it makes. Nor would it likely have to announce changes to its strategy or operations that were significant enough to materially change its fortunes. Now he risks being prosecuted if he does not make such disclosures.
“The biggest distinction is that Musk, as owner, would be beholden to his own desires or his remaining shareholders, rather than the large investor base he currently has,” said law professor Eric Talley. at Columbia. University.
WHO WOULD BE RESPONSIBLE?
The company would still have a board of directors, Talley said. It should also continue to follow state-level corporate governance rules, as well as all applicable tax, environmental and other laws.
WHAT ARE THE BENEFITS OF BEING PRIVATELY HELD?
Going private removes the possibility that Twitter will have to respond to angry shareholders if it makes big changes to its business. Musk has already floated the idea of relying less on advertising, which is Twitter’s main way to make money.
Investors often send a stock price lower if they think a company’s decision is wrong, or at least made at the wrong time. And the fiduciary duty of the board of directors of a publicly traded company is to generate a return for its investors.
A private company, on the other hand, does not have to worry about short-term declines in its share price. It can also more sincerely embark on plans, such as hiring new workers to transform it, without having to explain the jump in spending to shareholders in its next quarterly report.
Private and public companies “can do what they want, but there will be less backlash for private companies because a shareholder cannot complain because there are no other shareholders”, said Harry Kraemer , former CEO and Chairman of Baxter International who is now a professor at the Kellogg School of Management at Northwestern University.
HOW MUCH POTENTIAL RETURN IS THERE REALLY?
Public companies face a lot more scrutiny not just from shareholders and regulators, but also from the media, said Kraemer, who currently sits on the boards of both public and private companies.
And the pressure to meet performance targets every three months is indeed high, he said.
“I often tease people who say I was at Baxter for 23 years,” Kraemer said. “I tell them I was at Baxter for 92 quarters. And each quarter was the most critical of my life, until the next quarter started.
GETTING AWAY FROM SHORT TERMISM IS A GOOD THING, RIGHT?
This gives companies more freedom to make bold changes they believe in. But it also removes a source of liability, said Talley of Columbia.
“If you run the thing wastefully or lazily, you’re going to get called out,” he said.
WHAT DOES A COMPANY LOSE BY GOING PRIVATE?
A potentially quick way to raise funds. Publicly listed companies can sell more shares of their stock if they need to raise cash on the fly.
COULD MUSK DECIDE NOT TO CARE ABOUT MAKING PROFITS AT ALL?
If he’s the sole shareholder, he could apparently do whatever he wants. But it’s also borrowing up to $25.5 billion from a slew of banks to pay for the Twitter takeover. And they’ll want their money back, plus interest.
If Musk ends up having other shareholders with him on Twitter, that could also increase the pressure on earnings. Talley pointed to a famous case brought against another iconic automaker, Henry Ford, which cut dividends to shareholders at one point.
“The moral of the whole lawsuit is that while you have a lot of discretion about how to maximize shareholder returns, you don’t have a lot of discretion about whether to do so,” he said. -he declares.
SHOULD TWITTER REMAIN PRIVATE?
No, he can resume selling his shares on the public market. The privatization itself would also give Twitter the chance to revamp its ownership structure and start offering two classes of stock, one of which has more control over the company than the other, Talley said.