TheChek News Flow

It’s not easy riding with Elon Musk on one of his adventures. Tesla stock has been jumpy since he took his Twitter stake. On Thursday, after he made his takeover bid, Tesla shares fell 3.7%, shedding $38.6 billion in market value.

Shareholders are nervous. Many investors see the unpredictable Musk as irreplaceable—the so-called key-man risk. “Tesla is Elon Musk,” says Roth Capital analyst Craig Irwin, likening him to Apple ’s Steve Jobs. “He’ll be the most important person at Tesla for the next 20 years.”

Last year, Tesla shares (ticker: TSLA) fell 16% in two days following a Twitter poll Musk ran asking if he should sell 10% of his stake to pay taxes. The Twitterverse voted “yes,” Musk sold $16 billion in shares—and the stock hasn’t closed above $1,200 a share since. It’s now just under $1,000.

Accounting for what Musk already owns, buying Twitter could mean selling some 40 million Tesla shares. Of course, Musk could borrow against his Twitter stake, with a loan secured by his Tesla position, or, says Future Fund Active exchange-traded fund founder Gary Black, “line up a private equity backer or lenders who can provide leverage. He can sell some SpaceX shares. He doesn’t necessarily have to sell more [Tesla] stock.”

Bottom line: Most Tesla shareholders are used to Musk’s non-Tesla activities. In the long run, the stock moves on making and selling electric cars.

Dutch-Swiss chip maker STMicroelectronics , along with many of its peers, has seen business boom on the back of rising global demand and supply constraints.

That, in turn, led the Tesla and Apple supplier—which designs, develops, and makes semiconductors—to post fourth-quarter revenue ahead of guidance in January. And it has driven up the Paris-listed stock (ticker: STM.France) about 6% in the past 12 months to 34.75 ($37.84) euros.

While the stock has tumbled about 20% this year, the investment case remains strong. The Geneva-based company, which also has listings in Milan and New York, is set apart from its peers because its broader customer base spans a range of sectors, such as automotive and industrial, which accounted for about 35% of 2021 sales. Many of these sectors are expanding, and this diversity also offers protection.

STM can also provide an element of certainty in terms of 2022 revenue guidance, which is expected to rise 20% to a range between $14.8 billion and $15.3 billion because its order book for the year is full.

While peers slowed down investment in capital expenditures during the pandemic, STM continued to spend, and said in January that it will double investment in chip making facilities to about $3.5 billion in 2022, up from $1.8 billion in 2021. This will include a new factory in Italy.

Johannes Schaller, an analyst at Deutsche Bank Research, wrote in a note: “We retain our bullish stance on the stock…which we see in a unique position being able to deliver highly cost-efficient capacity into a tight market.” He thinks the stock could jump about 45% to €52.

This efficient production keeps costs low at the same time that product prices are climbing because of the supply squeeze, and this combination means the company is able to deliver healthy gross profit margins of 45%.

Aleksander Peterc, an analyst at Société Générale, says these margins should comfortably offset any increased input costs. He lifted STM’s revenue estimates to $15 billion for 2022 and $16.5 billion for 2023, predicting reported net income would increase to $3.22 billion for 2023. And he argued in a note that STM’s valuation is at an “unusually high discount” to both its peers and to historical earnings-based 12 month forward multiples.

STM employs more than 48,000 employees and has a market value of €32.3 billion. It fetches a low 12.2 times this year’s expected earnings, and while it is valued in line with its peers, rival Broadcom (AVG) trades at 16.95 this year’s expected earnings, and Analog Devices (ADI) at 19.12.

For the year ended Dec. 31, 2021, STM posted net sales of $12.7 billion, up from $10.2 billion the previous year. It saw net income almost double to $2 billion in 2021 from $1.1 billion. STM will post first-quarter earnings later this month.

“In 2022 we will accelerate the execution of our strategy, continuing to deliver differentiating products to customers for smart mobility, improved power and energy management, and the IoT and 5G,” CEO Jean-Marc Chery told Barron’s. “We will invest significantly to capture new opportunities and prepare for future growth, keeping our strong focus on sustainability.”

A dynamic market is set to last well into 2023, with favorable inventory levels, continued supply-chain issues, heightened price changes, and high order levels.

A survey of 120 industry respondents issued by Berenberg in March revealed half of respondents believe the supply chain/shortage won’t ease in 2022, and half of them suggested it may get worse before it improves. Customer demand has continued to grow since early 2021, and just a small number of respondents reported a slight drop in order levels recently.

Modest bids for tweet, converted to a nonfungible token last year, show a maturing NFT market

Twitter Inc. TWTR -1.68% founder Jack Dorsey’s first tweet was converted to a nonfungible token last year and sold for $2.9 million. Now, it may be resold for less than $14,000, a reflection of a maturing NFT market.

Sina Estavi, chief executive of Malaysia-based blockchain company Bridge Oracle, paid $2.9 million last March for the NFT, a digital certificate that says he owns Mr. Dorsey’s tweet, which reads “just setting up my twttr.”

NFTs exist on the blockchain alongside cryptocurrencies and serve as authentication certificates for those who buy original digital goods.

Non-fungible tokens, or NFTs, have gone in the last year from a relatively obscure blockchain technology to a market valued at around $44 billion. WSJ explores how NFTs are transforming the art market and tells the story of who is behind the buzz. Photo illustration: Alexander Hotz/WSJ

At the time of his purchase, Mr. Estavi tweeted: “This is not just a tweet! I think years later people will realize the true value of this tweet, like the Mona Lisa painting.”

About a year later, Mr. Estavi put the NFT up for auction. He didn’t say why.

Mr. Estavi listed it on an NFT marketplace called Opensea last week, expecting it to sell for at least $50 million. He pledged to donate at least 50% of the proceeds to a charity called GiveDirectly, which allows people to send money directly to people with no conditions on how the funds must be spent.

As of 5:45 p.m. ET Friday, however, a day after Tesla Inc. CEO Elon Musk made an offer to buy Twitter for $43 billion, the highest bid was only about $13,940, according to Opensea. Mr. Estavi said he was now rethinking the sale.

The low bids come as the NFT market has slowed in recent months. Global monthly sales of NFTs totaled almost $5 billion last August, according to CryptoSlam Inc., a site that aggregates NFT data. In March, sales were down to $2.4 billion.

“I don’t think it’s surprising that we’re seeing a little cooling off like we’re seeing in other markets as well,” said Jonathan Victor, NFT and gaming lead at Protocol Labs Inc., an open source research and development project. He said 2021 was the breakthrough year for NFTs, which led to high valuations. NFTs initially allowed artists and other creatives another avenue to be compensated for their work.

Now the market is broadening, more traditional companies are getting involved, and the focus is shifting to the utility that NFTs can provide—including to serve as tickets into exclusive spaces—leading to more digital certificates that don’t come with a hefty price tag, Mr. Victor said.

He likened some of the NFTs that have sold for seven-dollar-figures to works that have sold in the high end art market. “There isn’t a clear formula to say ‘this is how much this should cost,’ ” he said.

In the instance of the NFT of Mr. Dorsey’s first tweet, Mr. Victor said it was hard to determine its price.

“You have a price that’s set by one person who thought this was a fair value,” he said. Sometimes, others just don’t agree.

Mr. Estavi, reached by WhatsApp on Wednesday night, is reconsidering whether he wants to sell the NFT given the low bids. He said he might not sell it if he doesn’t get a good enough offer.

“It’s important to me who buys this NFT,” he said, “because I think the value of this NFT is far greater than you can imagine and anyone, whoever wants to buy it, must be worthy.”

Mr. Estavi put the NFT up for sale after spending nine months in prison in Iran for allegedly disrupting the country’s economic system, he said. He reiterated that if he does sell the digital certificate, he would donate the proceeds to charity.

After Mr. Dorsey sold the digital rights to the tweet last year, he posted tweets that showed the proceeds being converted to the cryptocurrency bitcoin and then sent to GiveDirectly’s Africa Response project to provide cash to families in Kenya, Rwanda, Liberia and Malawi.

Inflation surge slashes $11tn from world’s negative-yielding debt

Central banks adopt hawkish move to end large-scale asset purchases and raise interest rates

This year’s hawkish change in tack from central banks is close to ending the era of negative-yielding debt, shrinking the global tally of bonds with sub-zero yields by $11tn.

Bond prices have tumbled this year as central banks move to end large-scale asset purchases and raise interest rates in their battle with soaring inflation, pushing yields in many big economies to their highest levels in years.

As a result, bonds worth $2.7tn currently trade at a yield of less than zero, the lowest figure since 2015, and a sharp plunge from more than $14tn in mid-December, according to the Bloomberg global aggregate bond index — a broad gauge of the fixed income market. Wiping out negative yields entirely would mark a return to normality for a broad range of big investors.

“Central banks are belatedly trying to get ahead of this inflation shock, so the bond market has abruptly priced in a big shift in interest rates,” said Mike Riddell, a senior portfolio manager at Allianz Global Investors.

Negative yields were once considered inconceivable, then as a novelty, and later as an established feature of global markets. They mean that prices for debt are so high, and interest payments so low, investors are certain to lose money if they hold their bonds to maturity. They reflect a belief that central banks would keep interest rates at rock bottom and have become entrenched in large quantities of debt in Japan and the eurozone in recent years.

That assessment has shifted dramatically in recent months, particularly in the euro area, where the European Central Bank on Thursday reiterated plans to end its bond-buying programme this year, and traders are betting that interest rates will return to zero for the first time since 2014 by December.

An end to ultra-low or negative yields is a “double-edged sword” for bond investors, according to Riddell. “On the one hand people are nursing losses on the bonds they hold. But the flipside is that positive risk-free rates mean future returns arguably look better.” He added that would be “good news” for investors such as pension funds that need to hold large quantities of safe assets like government bonds but also need to earn sufficient returns to meet future payouts.

The dwindling stock of negative-yielding debt also reflects high levels of inflation, which has driven investors to demand greater compensation for rising prices, according to Salman Ahmed, global head of macro at Fidelity International.

“Yes, nominal yields are moving up but long-term investors should really care about real returns. It’s what’s left after inflation that counts, and inflation is very high right now,” he said.

The eurozone has been the big driver of the reduction in debt trading at sub-zero yields. In December, the currency bloc accounted for more than $7tn of such bonds, including all of Germany’s government bonds. That figure has declined to just $400bn. Japan, where the central bank has so far resisted the global shift towards tighter monetary policy, now accounts for more than 80 per cent of the world’s negative-yielding bonds.

Negative yields are likely to multiply again in the euro area, unless the ECB delivers the interest rate rises already priced in by markets. The central bank will struggle to lift rates much from the current level of minus 0.5 per cent given the threat to the region’s recovery posed by Russia’s invasion of Ukraine and the resulting rise in energy prices, Ahmed said.

“I think the ECB has missed the window to normalise policy because the growth shock from Ukraine will be much more severe in Europe,” he added. “In our view they aren’t getting back to zero this year, and that means negative-yielding bonds are not about to disappear.”

Elon Musk fails to convince the doubters that he will ‘save’ Twitter

Billionaire has yet to explain how he will bring free speech and public trust to the social media platform

If Elon Musk thought that casting himself as Twitter’s saviour would win widespread backing for his $43bn hostile takeover bid, he was in for a rude awakening.

The world’s richest man laid out some sweeping claims for this week’s unsolicited approach. Shareholders, he promised, would “love” the rich premium he was offering. He would bring free speech back to one of the most important social media sites. And he would overhaul the management of a company that had lost its way.

With characteristic hype, he even pitched his bid as a benefit to humanity. “Civilisational risk is decreased the more we can increase the trust of Twitter as a public platform,” he said in an interview at a TED conference, hours after his approach had been revealed.

On all counts, the claims have fallen largely on deaf ears. Even before Twitter’s board revealed its opposition early on Friday by adopting a poison pill takeover defence, shareholders had given their own vote of no confidence. Twitter’s shares dropped nearly 2 per cent on news of the bid, in a sign of Wall Street’s low confidence in it succeeding.

“I would be pretty surprised if the Twitter board were willing to give in at $54 given where the stock was just six months ago,” said Rich Greenfield, a partner at consultancy LightShed, voicing a widespread view before news of the poison pill. Musk’s emergence as Twitter’s biggest shareholder (a position he lost to Vanguard this week) sent the shares up 38 per cent earlier this month on hopes he would be a catalyst for change. But his offer is still 26 per cent below the 12-month high.

If Musk’s proposal was intended as a sighting shot, then it left many investors unsure of how serious he was about following through — particularly given his incorrect claim once before to have had “funding secured” to take Tesla private.

Feeding the scepticism, Musk smirked as he took the TED stage shortly after his bid, and then reopened the “funding secured” controversy by insisting he had had the money all along. He only settled a complaint from regulators, he claimed, because they had backed him into a corner where Tesla was facing bankruptcy.

Going public with a hostile approach for Twitter before he had financing in place or discussing it in depth with the board was a “highly unusual” move that had not made it any easier for people to his true intentions, said Ann Lipton, associate professor in business law and entrepreneurship at Tulane University. Twitter’s directors were left in a position of trying to assess not only whether the price he was offering was a fair one, but also whether he is even willing to pay it. Without the financing, “it’s very hard to believe that he is”, she added.

Musk’s attempt to wrap his bid in the banner of free speech, meanwhile, also drew a sceptical response from many experts who have worked on keeping the largest social media platforms free of hate speech and misinformation. He said he wanted to end the secretive system through which Twitter favoured some tweets over others, and make it less likely users are banned. “Time outs are better than permanent bans,” he said.

The declaration drew halfhearted applause on the Republican right, where the permanent ban against Donald Trump has become a symbol of Silicon Valley bias. But some questioned how far Musk would be able to go in challenging the wider practice of content moderation.

“Reinstating Trump would be the ultimate litmus test,” said Jason Miller, a former senior Trump adviser. Without that, “it’s all just window dressing”, he said — though he added that Twitter’s culture and its employees’ left-leaning views would make it hard to completely change the ethos.

Among many experts, Musk’s claim that Twitter was suppressing free speech was dismissed as a naive claim that failed to take into account years of effort to weed out hate speech and misinformation.

Twitter is grappling with a deeper problem caused by its advertising business model, which “rewards extreme speech”, said Roger McNamee, a Silicon Valley investor who has campaigned against Facebook. That has forced it to try to fight back a tide of hatred and misinformation, in turn drawing criticism over alleged censorship, he and others have said.

In another move that he claimed would improve freedom of speech, Musk said he would publish the algorithm that determines what users see on Twitter. “Having a black box algorithm, promoting some things and not other things”, could be “quite dangerous”, he claimed.

However, most digital services keep their ranking algorithms secret, and disclosing Twitter’s could make it possible for people to “game the algorithm and manipulate the content” users see, said Greg Sterling, co-founder of Near Media and an expert on search and social media. That could cause particular problems given Twitter’s role in political debate and its use by some governments to release official information, he added.

The promise of a stronger commitment to free speech on Twitter could also damage the company’s business by making its site less attractive to brand advertisers, according to some advertising experts and financial analysts.

It isn’t “necessarily good for civilisation if inaccuracy is allowed to spread under the guise of free speech”, said Arun Kumar, chief data and technology officer at advertising group IPG. Advertisers “don’t want to be associated with fake news or hate speech”, he added.

Musk himself said this week that he was not investing in Twitter for economic reasons, suggesting that he might not be swayed by such concerns. A week ago, in a tweet that he later deleted, he also claimed that its reliance on an advertising business model had exposed Twitter to the “power of corporations to dictate policy”.

But experts warn that relying on other business models such as subscriptions for its income could reduce the reach of the service. “There would be much less conversation if it was a paid platform,” said Greenfield.

Voicing a widespread view, McNamee said all the doubts surrounding Musk’s bid showed it might be more a pursuit of attention than a concerted effort to take control of Twitter. Yet Musk has never followed the conventional course, and his huge personal wealth and declared aim of taking control of the company have made it hard even for most critics to dismiss his approach out of hand.

With Twitter digging in against his opening shot, Wall Street may soon get to see whether Musk really has the desire — and the patience — for a drawn-out fight.

‘You have to do things perfectly . . . but it’s so secret’ — how to build an oligarch’s yacht

Designers from Norway, construction workers from Germany and UK crews balance discretion with flamboyance in the finished product

The industrial zone and sprawling lorry park in the small Dutch town of Oss give almost no indication of the opulent yachts being built inside nine covered dockside sheds, or of the identity of their clients or owners.

But Heesen, the local shipyard that boasts of “producing some of the finest superyachts in the world”, is part of a tight network of manufacturers and service businesses for the waterborne super-rich that is now under scrutiny because of their Russian oligarch clientele.

Heesen is ultimately owned by Vagit Alekperov, who runs the Russian oil company Lukoil and is under sanctions in the UK and Australia. The company, which says it is operationally independent of Alekperov, has built three “Galactica” yachts linked to him. It has also built two that are connected to the UK and EU-sanctioned businessmen Igor Kesaev.

It is one of a network of companies in the European superyacht supply chain stretching from designers in Norway to builders in Germany and Italy, brokers in Monaco and crews in the UK.

They balance discretion in their operations with flamboyance in their marketing and their finished products.

Many are now watching nervously as governments step up seizures in an intensifying campaign of sanctions against Russia because of the war in Ukraine.

Just this week, the Dutch government placed 18 yachts in yards under restrictions while their ownership is examined and confirmed that two further boats that are in the Netherlands for maintenance have links to sanctioned individuals.

Egbert Wattel, chief executive of Younique Yachts in Makkum, another Dutch shipbuilding town, describes a longstanding culture of secrecy even for builders of smaller boats like him: “Most owners don’t want everyone to know they’re building a yacht. It’s always been like that. It’s like being a doctor — you don’t mention who the patients are.”

Makkum has two huge dry docks — one 110 metres long and the other 120 metres — for outfitting superyachts, allowing ships to be finished while enclosed from every side. They can handle all but the very largest boats.

Ferrye Jansen works in a fish bar in the shadow of the “Cathedral”, one of these structures. He knows where a lot of his customers work. But they cannot tell him what they have been doing. “They’re buying their fish and their fries, but they can’t say anything. It’s classified! . . . I swam over there but couldn’t see anything.”

Russians began actively buying yachts in the 1990s as a select few made rapid fortunes following the collapse of the Soviet Union. Roman Abramovich, who made his money in oil, was an early adopter when he bought Sussurro in 1998.

Dozens of others followed his lead as the number of billionaires grew. Superyacht Times, an industry publication, estimates Russian owners today account for 9 per cent of the world’s 2,000 superyachts of at least 40 metres in length.

In the 80-metre-plus category, Russians own a fifth of the 153 ships, second only to Gulf state buyers. The world’s largest superyacht by volume, the 168-metre Dilbar now stranded in Hamburg, is owned — according to the US Treasury — by Alisher Usmanov, a sanctioned oligarch close to Putin.

Boat International, a research company, reports that Russian buyers account for about €3.9bn of a cumulative global order book of €35-€40bn. It says Italian yards are building the most superyachts for Russian clients, with 60 under construction, followed by the Netherlands and Turkey.

Some companies have adapted their marketing to the prevalence of Russian buyers. One person in the sector described an event hosted by a superyacht builder: “We were invited there and the only two languages spoken were Russian and English. All the entertainment for the event was by the Russian philharmonic.” The website of yacht builder Italian Sea Group, based in Carrara in Italy, is in Russian alongside Italian and English.

Russian buyers are known for having particularly expensive tastes. Alongside saunas, helicopter pads and even submarines, they ask for ultra-luxury fittings including rare tropical woods, special leathers and solid gold taps. “They are one notch below the Saudis,” said one broker.

A Dutch craftsman highlighted both an obsession with detail and secrecy as characteristic of the sector: “The standards are incredible. You have to do things just perfectly . . . but it’s so secret. If I did something amazing today, I can’t show my mum. I am not allowed to take a photo of my work.”

Superyachts are often owned through offshore companies, which disguises their ownership and can offer tax benefits. Sailing in international waters also provides some protection from authorities onshore.

A former coast guard in Antigua told the Financial Times that Russian superyachts often had armed private security guards. “We pretty much leave them [alone]. We can’t search a boat that big and we know if we do the owner might have a direct relationship with politicians so we need to be careful.”

Yet those that work in the industry say owners generally spend a few weeks a year at most on their yachts. While there is an active re-sale market, they also offer a low return on investment, given annual operating costs are typically 10 per cent of the purchase price.

The need for large crews — typically male for the decks, young and female for the interior and with a general preference for non-Russian speakers — as well as regular reprovisioning and online satellite tracking alongside their highly visible presence in harbours also means discretion is limited.

A number of Russians have invested in the industry nonetheless.

Heesen was bought by Alekperov more than a decade ago and is held via his Cyprus investment vehicle Morcell. The company said it “[condemned] violence in every form and [hoped] for a fast resolution of the war” and that it was “co-operating in full transparency with government agencies”.

Its non-executive directors Pavel Novoselov and Pavel Sukhoruchkin resigned after Russia invaded.

Imperial Yachts, a brokerage based in Monaco, was founded by Evgenny Kochman and his sister Julia Stewart in 2005 after several years of selling yachts to Russians. It remains a highly influential intermediary for Russian buyers, although it has since diversified its clients.

The company said: “IY is a global business with an international customer base, and we are confident that our business will continue as it is not dependent on any single geography. Whilst the sector will clearly be impacted it is hard to yet understand what that will be.”

Another broker, Burgess Yachts, a high-end outfit with offices across the globe, has a roster of Russian clients — both owners and those looking to rent at rates upwards of $500,000 a week.

The company appeared to remove details of 10 or more superyachts from its website after the invasion started. But an unredacted mirror website used for testing purposes remains active, allowing users to see which boats have gone.

These include Axioma, a 72-metre vessel owned by Dmitry Pumpyansky that was detained in Gibraltar last month and was previously available at €299,000 a week. Pumpyansky was sanctioned by the US as early as 2017. Sky, a boat owned by Kesaev that is valued at $40mn and measures 50 metres, was previously available to charter for $245,000 a week.

Burgess said in a statement that it “continues to monitor the ongoing situation in Ukraine closely and adheres to all compliance and guidance set out by the governments in territories that the company operates in”.

In Makkum, local business owners agree that superyachts are the town’s most important source of revenue. The yard employs 400 people directly, but also attracts a rotating staff of subcontracted specialists, who drink in the town’s bars and stay in its hotels.

But there is little sense of how the town’s economy will be affected by sanctions. Subcontractors often do not have clear sight of their ultimate clients. One said: “To be honest, we don’t have a good sense of who the clients are. Sometimes it comes out, or they visit. But I worked on something and I only realised who owned it when I saw it got seized.”

Others in the sector stress that they are careful to follow “know-your-customer rules” and have no desire to fall under the scope of sanctions. They also play down suggestions that the crackdown might hit business.

Rory Jackson, business editor of The Superyacht Group, a data and research company, said: “I don’t think it will make buyers wary. There is no sense buying such a vessel and then trying to make it inconspicuous.”

he last time Twitter was under shareholder assault, from activist investor Elliott Management in 2020, Silver Lake CEO Egon Durban called Twitter CEO Jack Dorsey offering to help, according to a person familiar with the situation. Twitter accepted the outreach: Silver Lake invested $1 billion in Twitter and got a board seat, in a move unveiled as part of a broader peace deal in which Elliott also got a board seat.

In other words, Silver Lake was Twitter’s white knight. That was certainly the view of Twitter shareholder Orlando Police Pension Fund, which alleged in a lawsuit filed last year that Twitter did the deal with Silver Lake “to protect themselves from a high-profile proxy contest” with Elliott. Now the question is whether Twitter can find another white knight to defuse its latest crisis by buying out Elon Musk.

THE TAKEAWAY

The last time Twitter experienced a shareholder attack, Silver Lake emerged as a white knight to help. Silver Lake, or another private equity firm, could play the same role again.

Twitter on Friday announced it had adopted a poison pill in response to Musk’s $43 billion takeover offer this week, the first sign that the company plans to fight the bid. The pill stops Musk from raising his stake above 15% without board agreement. That means he can’t make a tender offer to take control. As he hasn’t yet lined up financing for his bid, such an offer probably wasn’t in the cards in the near term anyway.

Twitter still faces the issue of how to respond to his bid. That’s why the option for Twitter to find an investor to buy out Musk looms large. Musk opened the door to that option by indicating in a letter to Twitter chair Bret Taylor, when he announced his bid, that if his offer failed, he would “reconsider” his shareholding. While Twitter might surely welcome his sale, Musk dumping his entire stake would severely depress Twitter’s share price.

Silver Lake is a possible buyer, although its ability to do a deal would be complicated by the fact that its chief, Egon Durban, is on Twitter’s board. Another issue Silver Lake is under a standstill agreement that would prevent its purchase of Musk’s stake. It’s possible, however, that Twitter’s board would renegotiate that deal.

And Silver Lake could be an appealing white knight for Twitter, as it has a reputation for standing by the management of companies, such as Endeavor, in which it is an investor. Whether Silver Lake and Musk could reach a deal on the price may be the big problem.

Alternatively, Twitter may be able to find another private equity firm to jump in, particularly if it can find a way to sweeten the terms as it did with Silver Lake’s investment during the Elliott episode in 2020. Silver Lake bought $1 billion worth of convertible notes issued on terms so generous that it aroused the ire of the Orlando Police Pension Fund, which subsequently sued. The fund described the terms as “unreasonable and below market” in its lawsuit last year.

The investor alleged the convertible notes were issued “at a substantial discount to market prices.” The convertible notes convert into stock at $41.50 a share. That was just $9 a share above where Twitter stock was trading at the time. The investor noted that other convertible notes issued by Twitter in earlier years converted at much higher prices. In September 2014, for instance, Twitter issued notes convertible at $77.64, about 50% higher than the prevailing stock price at the time.

Twitter and Silver Lake declined to comment. Elliott did not respond to requests for comment.

Elliott Threat

If Twitter doesn’t line up a buyer, there is a risk that someone who isn’t friendly will buy Musk’s shares. One possible contender is Elliott itself.

While Elliott struck a peace deal with Twitter in 2020 after Silver Lake entered the picture, agreeing to limits on its share purchases, those restrictions lapsed when Elliott’s representative, Jesse Cohn, left Twitter’s board last year.

Elliott could be motivated to become active again, given that Twitter hasn’t done what it promised at the time of the peace settlement in 2020. In that agreement, Twitter pledged to make changes to corporate governance, including getting rid of its staggered board structure under which roughly a third of the board is up for election every year. That kind of structure makes it difficult for an outsider to take control of the board. A proposal put to shareholders last year to get rid of the structure didn’t get enough votes to pass, although Twitter is trying again this year.

Twitter also said at the time that it hoped to increase its daily active user count by 20% or more “in 2020 and beyond.” While DAUs grew 26% in 2020, they increased only 13% last year.

Twitter also said it wanted to accelerate revenue growth and gain share in the digital ad market. Revenue growth accelerated right after the pandemic but has slowed down in the past two quarters. Its first-quarter revenue growth is expected to slow again, to 18%, according to data from S&P Global Market Intelligence. As for its share of the ad market, that hasn’t grown in recent years, according to eMarketer.

Twitter hasn’t even completed a $2 billion share buyback program announced at the time of the peace deal: It bought back just $1.2 billion worth of stock through the end of 2021. Twitter recently announced a new $4 billion buyback program.

Moreover, Twitter’s introduction of a poison pill is precisely the kind of defensive measure activists dislike, because they insulate boards from outside pressure.

Defence comes a day after Tesla entrepreneur offered $54.20 a share in cash to buy social media platform

Twitter has launched a poison pill takeover defence to fend off a $43bn hostile bid from billionaire Tesla chief executive Elon Musk.

In the first sign that the social media company plans to fight Musk’s bid, Twitter said on Friday that its board of directors had unanimously adopted a year-long shareholder rights plan to “enable all shareholders to realise the full value of their investment in Twitter”.

The board’s aggressive move, designed to block Musk from building a greater than 15 per cent stake in the open market, is likely to end the South African-born entrepreneur’s hopes of buying the social media company.

It comes as US private equity group Thoma Bravo has also expressed interest in taking Twitter private in what would be a rival bid to Musk’s, although sources said it was at a very preliminary stage and no offer has been made.

Thoma Bravo and Twitter both declined to comment.

Musk said this week that his offer was “best and final” adding that “if it is not accepted, I would need to reconsider my position as a shareholder”. A person close to Musk said that he was not going to budge on that position.

Under Twitter’s plan, existing shareholders will be able to buy shares at a discount if anyone acquires more than 15 per cent without board approval, diluting an unwelcome bidder.

Musk offered $54.20 a share in cash for Twitter, valuing the company at $43.4bn, days after he took a 9 per cent stake in the company to become one of its largest shareholders.

Twitter’s board is concerned that if Musk built a stake worth more than 15 per cent he could indirectly wield significant power over the direction of the company even without an executive or directorship role.

The only way for him to take over Twitter now is through a mutually agreed deal, which would need to carry a significantly higher price, said a person close to the company’s board.

Poison pills were developed as a defence strategy in the 1980s to protect companies from corporate raiders, and were widely criticised as a way for a company’s managers to entrench themselves against attack. Subsequent legal challenges reduced some of their effectiveness, and most academic studies have shown that while poison pills slow an unwanted takeover bid, they do not usually prevent eventual agreement after a negotiation.

Twitter said the plan could reduce the likelihood that a hostile bidder “gains control of Twitter through open market accumulation without paying all shareholders an appropriate control premium”, as well as slow any bid.

“The Rights Plan does not prevent the Board from engaging with parties or accepting an acquisition proposal if the Board believes that it is in the best interests of Twitter and its shareholders,” it added. The plan expires on April 23 2023, it said.

After his shareholding was announced last week, Musk reached a preliminary agreement with the company to join its board of directors, only to reverse course on Monday without explanation.

Musk then announced his offer on Thursday in a regulatory filing in which he said he would unlock the company’s potential to be “the platform for free speech around the globe”. Included in the filing was the transcript of a message he sent to Twitter, which said: “It’s a high price and your shareholders will love it.”

The offer represents a 38 per cent premium to Twitter’s share price since April 1, three days before his stake became public, although it is still 26 per cent below its 12-month high.

It is unclear how exactly Musk would fund the deal. In an interview after the announcement, Musk said he had “sufficient assets” to do so and intended to retain as many shareholders as possible. However, he conceded: “I’m not sure that I will actually be able to acquire it.”

Musk did not address the poison pill counterattack publicly on Friday, instead thanking his fans on Twitter for their “support” after they voted in favour of him buying the company in an online poll run by a bitcoin newsletter.