Elon Musk, the CEO of Tesla Inc (TSLA.O), announced on Monday that he had cancelled his plan to join the board of directors of Twitter Inc (TWTR.N) just before his term was about to begin, the latest move by the world’s richest man to defy corporate America’s rules.
Musk admitted last week that he had taken a board seat at Twitter, despite claiming to be a passive investor in a regulatory filing he had filed the day before.
Musk approached Twitter for a board position weeks before the social media company consented, according to media reports at the time.
The reason for the reversal was not disclosed by Musk or Twitter. Even if he has no plans to do so at this time, Musk stated in a regulatory filing on Monday that he might now expand his 9.1 percent holding in Twitter or press the firm to seek mergers.
There was no indication that Twitter was concerned about Musk’s hostile proposal. Twitter made no mention of a “poison pill” shareholder rights plan that would cause Musk’s stake to be diluted if he tried to increase it above a particular level.
However, in a message on Sunday, Twitter CEO Parag Agrawal cautioned Twitter staff of “distractions ahead,” a likely reference to Musk’s criticism of the firm via Twitter. He went on to say that he thought Musk’s decision was “for the best.”
In afternoon trading in New York on Monday, Twitter shares were up 2.6 percent at $47.48. They’ve risen by more than 20% after Musk revealed his Twitter investment on April 4. According to Wall Street experts, Musk’s engagement drew a large number of ordinary investors to the company.
Securities experts have pointed out that by delaying and mischaracterizing the announcement of his Twitter investment, Musk was able to buy the stock at a lower price, saving himself an estimated $143 million. It’s unknown whether Musk, whose net worth is estimated to be $274 billion by Forbes, would contemplate this.
Many of Musk’s comments on the social media platform that he sent over the weekend were deleted on Monday. What triggered the move was unclear. The tweets varied from a plea for advertising to be removed from Twitter to the removal of the letter “w” from the company’s name.
Musk’s reversal, according to Jacob Frenkel, a former enforcement attorney at the US Securities and Exchange Commission (SEC), was unusual but did not appear to break any rules.
“Being made an opportunity to join the offer to board, considering it, and electing not to is not a breach of securities laws,” Frenkel explained.
Musk’s public criticism of Twitter, according to some experts, would have been difficult to reconcile with his fiduciary duties as a board director.
“Most people, including activist shareholders, don’t talk publicly after they’re on the board,” said Gregory Taxin, managing director of activist investor advice firm Spotlight Advisors.
Musk isn’t the first person to do a high-profile U-turn. He tweeted in 2018 that he had “financing secured” for a $72-billion plan to take Tesla private, but he never followed through.
To address SEC allegations that Musk deceived investors, he and Tesla each paid $20 million in civil fines, and Musk stepped down as Tesla’s chairman. Musk has since contested an arrangement he made with the Securities and Exchange Commission to have some of his tweets evaluated by a lawyer.
Musk’s compliance with his agreement with the SEC has also been questioned by securities professionals. Musk announced on Twitter in early November that if users approved, he would sell 10% of his Tesla stock. The poll resulted in a majority of people saying yes, and Tesla stock plummeted as a result. Tesla shares has since been sold for $16.4 billion by Musk.
Some Twitter employees were concerned about the future of the social media platform’s ability to police content when Musk was appointed to the board last week, according to company insiders.
Tesla, an electric car maker, and SpaceX, a space rocket company, were already keeping Musk very busy, according to Charles Elson, founding director of the Weinberg Center for Corporate Governance, and he would have had little time to contribute substantially to Twitter as a board director.
“Tesla’s stockholders should be very concerned about his involvement here,” Elson added, “because it simply diverts time and attention away from his principal venture.”
