Mere days after announcing that he had acquired enough shares of Twitter to become its largest individual shareholder and publicly accepting a role on the company’s board of directors, Tesla CEO Elon Musk has backed down and now will no longer be joining the social media giant’s board.
Parag Agrawal, recently appointed CEO of Twitter, issued a statement addressed to the company’s employees announcing the change in plans.
“Elon Musk has decided not to join our board,” Agrawal wrote, adding that, “I believe this is for the best.”
Agrawal said the board originally believed that “having Elon as a fiduciary of the company where he, like all board members, has to act in the best interests of the company and all our shareholders, was the best path forward.”
Agrawal also warned his employees that “there will be distractions ahead” without eluding to what those distractions may be and told them to “tune out the noise and stay focused on the work and what we’re building.”
Following Musk’s now rescinded acceptance of the role, Musk posted several tweets eluding to changes he would like to see to the platform including a possible edit button for tweeters however, Musk deleted several of the tweets posted between the time he informed the board he would not take a seat and when Agrawal announced the news that he had declined the appointment.
Speculation runs rampant
News of the reversal has the internet abuzz with speculation concerning just what Musk has planned for his stake in the company with some throwing accusations of stock manipulation Musk’s way.
Reddit user, AbuSaho, posting in the popular subreddit r/stocks, said, “I remember seeing a lot of posts of people who bought shares/calls last week based off the news he was joining the board. This sounds like some people just got made instant bagholders when the market opens up.”
Another Reddit user, posting in r/tech pondered whether Musk’s recent behaviour was a “pump and dump” scheme.
Others are speculating that Musk is positioning himself to purchase more of the company since had he become a board member his potential stake in the company would have been capped at 14.9 percent. Board members are restricted from owning 15 percent or more of stock in the company.
CNBC reported that “many analysts” are suggesting that Musk backing off from the Twitter board opens the door for a hostile takeover of the company.
“Musk’s decision not to join Twitter’s board means he’s no longer limited to owning just 14.9% of the company. Now, many analysts suggest Musk could consider a hostile takeover,” CNBC reported.
Don Bilson of Gordon Haskett Research Advisors told CNBC, “This weekend’s changeup spares the company from having to deal with a renegade director tweeting about board-level discussions. That would have been untenable.”
Bilson asserted, “The flip side to this is TWTR must deal with a wildcard investor that already owns 9% of the company and has the resources to buy the remaining 91%. As volatile as Musk is, we could see a move like that made shortly, Or we could never see it [at] all. This overhang that TWTR now lives beneath certainly qualifies as a distraction.”
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Musk broke the law, allegedly
The news follows reports that Musk appeared to have violated federal law by not notifying the Securities and Exchange Commission (SEC) that he was buying up more than a 5 percent stake in the company.
According to the Washington Post, Musk was 11 days late in publicly declaring he had purchased a massive 9.2 percent stake in the company.
A 50-year-old law stipulates that investors must notify the SEC when one acquires more than a 5 percent stake in a publicly traded company. Musk passed this threshold on March 14, according to filings, however Musk didn’t disclose his purchase until April 4.
David Kass, a finance professor at the University of Maryland’s business school said the late filing netted Musk an estimated $156 million. “I really don’t know what’s going through his mind. Was he ignorant or knowledgeable that he was violating securities law?” Kass told the Washington Post adding that, “Whoever was handling the trades for Musk should have known.”
Musk faces fines of potentially hundreds of thousands of dollars on his multi-million dollar windfall.
Adam Pritchard, a professor of securities law at University of Michigan’s law school, said that the SEC could argue that Musk needs to part with his theoretical profits; however, he said that was a “long shot.”
The SEC “would have to be really angry with him to try that because they would have a good chance of a court rejecting the argument,” Pritchard said.
As to where all this goes, it is up in the air. Following news of Musk’s initial investment in the platform Twitter’s stock had its best day since its initial public offering in November 2013 with shares closing up more than 27 percent.
The stock jumped again by an additional 2 percent following the news that Musk was joining the company’s board of directors.
Following news that Musk declined the appointment to the board Twitter stock fell over 8 percent to less than $43 a share at 4 a.m. E.T. before recovering slightly.
KeyBanc analysts wrote on Monday, “While it remains unclear what Mr. Musk’s priorities are, we do expect his tweets will receive increased attention, which could drive share price volatility.”