If Elon Musk and Twitter go out with him, the company will soon become private and under the control of the billionaire.
The most obvious immediate change would be the withdrawal of Twitter shares from the New York Stock Exchange. But the company would probably also be relieved of having to provide regular updates on its business to U.S. regulators and Wall Street.
An important change for Twitter users is that the company would probably have more freedom to make important or unpopular changes. That’s because you shouldn’t worry about a possible Wall Street setback.
Here’s a look at what it means for a business to be private.
What will happen to your stock?
If the merger closes as planned, Twitter investors would get $ 54.20 in cash for each share they own. These actions would then be canceled and ceased to exist.
What difference does this make?
Twitter is likely to no longer have to submit documents to U.S. regulators every three months to show how much money it is making. You should also probably not announce changes to your strategy or operations that are large enough to materially change your fortune. He is currently at risk of being sued if he does not make such disclosures.
“The biggest distinction is that Musk as the owner would be in debt with his own wishes or with his and the remaining shareholders, instead of the large investor base he has now,” Eric said. Talley, a law professor at Columbia. University.
Who would be responsible?
Talley said the company would still have a board of directors. It should also follow statewide corporate governance rules, as well as all applicable tax, environmental, and other laws.
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What are the benefits of being private?
Being private eliminates the possibility that Twitter may have to respond to angry shareholders if it makes major changes to its business. Musk has already raised the idea of relying less on advertising, which is the main way to make money on Twitter.
Investors often send a lower stock price if they think a company’s decision is wrong, or at least it was made at the wrong time. And the fiduciary duty of the board of directors of a listed company is to generate a return for its investors.
Meanwhile, a private company does not have to worry about short-term falls in the price of its shares. He can also jump right into plans, for example, by hiring a lot of new workers to transform it, without having to explain the jump in shareholder spending in his next quarterly report.
Both private and public companies “can do whatever they want, but there will be less rejection for private companies because a shareholder can’t complain because there are no other shareholders,” said Harry Kraemer, former CEO and chairman of Baxter International is now a professor at Northwestern University’s Kellogg School of Management.
How much potential backlash is there, really?
There is much more control over public companies, not only by shareholders and regulators, but also by the media, said Kraemer, who is currently on the boards of directors of public and private companies.
And the pressure to meet performance targets every three months is really high, he said.
“I often joke people who say I was in Baxter for 23 years,” Kraemer said. “I tell them I spent 92 quarters at Baxter. And each quarter was the most critical of my life, until the next one started.”
Moving away from the short term is good, right?
It allows companies more freedom to make the bold changes they believe in. But it also eliminates a source of responsibility, Talley of Columbia said.
“If you’re running the thing in a wasteful or lazy way, you’ll be asked,” he said of the listed companies.
What does a company lose by being private?
A potentially quick way to raise cash. Listed companies can sell more shares of their stock if they need to raise cash in a pinch.
Could Musk decide not to worry about making a profit?
If he is the sole shareholder, he could apparently do whatever he wants. But it is also borrowing up to $ 25.5 billion from a large number of banks to pay for Twitter’s acquisition. And they want the money back, plus the interest.
If Musk ends up having other shareholders along with him on Twitter, that could also increase the pressure on profits. Talley pointed to a famous case filed against another iconic automaker, Henry Ford, that reduced dividends to shareholders at one point.
“The moral of the matter is that while you have a lot of discretion when it comes to maximizing shareholder returns, you don’t have a lot of discretion about whether to do it,” he said.
Should Twitter remain private?
No, you can resell your shares on the public market again. Going private would also give Twitter a chance to renew its ownership structure and start offering dual share classes, including one that has much more control over the company than the other, Talley said.
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