Let’s hear it for
Twitter’s
board of administrators. Given the appreciable drama surrounding
Elon Musk’s
bid for the corporate, it’s straightforward to miss the board’s skillful dealing with of his method.
In early April, when Mr. Musk initially disclosed his acquisition of barely greater than 9% of the corporate’s shares, the board responded by providing him a seat. This elegant transfer acknowledged the appropriate of a significant shareholder to affect the corporate’s route and in addition would have hindered Mr. Musk’s capacity to criticize the corporate publicly. That he finally turned this supply down doesn’t imply the board was unwise to supply it.
Next, when Mr. Musk introduced his supply to buy the corporate at $54.20 a share, the board adopted a poison tablet. This transfer was affordable, provided that he didn’t clarify how he would finance his supply, and it pressured him to barter with the board as a substitute of transferring on to a young supply. Forcing a notoriously mercurial bidder with questionable monetary capability to cope with the board—which has the flexibility to barter deal phrases that shield shareholders and others—was consistent with its fiduciary accountability.
Poison capsules could be misused by intransigent boards to impede hostile acquisition affords that could possibly be in the most effective pursuits of shareholders. In Twitter’s case, the board may have justified its opposition to Mr. Musk’s bid for numerous causes: his shortsighted disregard for promoting income, his unworkable aversion to content material regulation, or a possible exodus of beneficial staff.
Twitter’s board, nevertheless, made clear this week it isn’t rigidly opposed to alter. Once Mr. Musk disclosed that he had secured financing for his supply, and after the board heard from its personal monetary advisers that his supply worth was enticing from a monetary perspective, the board accredited the deal. It did so, nevertheless, solely after negotiating two vital phrases: a $1 billion breakup charge—which might shield Twitter’s shareholders if Mr. Musk walks away from the deal—and cash-outs of worker stock-option grants—which presumably might be appreciated by Twitter staff who would in any other case have been left with illiquid shares of a personal firm whose proprietor might not make profitability a precedence.
Public firm boards have an essential function to play within the essential moments of a company’s life. There might be appreciable uncertainty about Twitter’s future if Mr. Musk’s acquisition closes, however there’s little doubt that Twitter’s board dealt with his method skillfully, enhancing worth for each the corporate’s shareholders and its staff.
Mr. Lefler is a associate emeritus on the Los Angeles legislation agency Irell & Manella LLP.
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Appeared within the April 28, 2022, print version.
Source: www.wsj.com”