Big Technology Podcast - Emergency Podcast: Elon Musk Offers To Buy Twitter — With Ranjan Roy

Episode Date: April 14, 2022

Ranjan Roy is the co-author of Margins, a Substack newsletter about the financial markets. He joins Big Technology Podcast to discuss Elon Musk's bid to buy Twitter and its implications. Join us for this 'emergency' episode where we discuss whether Musk will improve the service, whether he can pull it off, and why he's making the move.

LinkedIn Presents Hello and welcome to the big technology podcast, a show for cool-headed, he wants conversation, of the tech world and beyond. Elon Musk has made an offer to buy Twitter, trying to buy it at $54. dollars and 20 cents a share bringing to around 43 billion in total value that would be quite a premium over what it's trading at today although much less than what it was just a few months ago we are going to do a emergency and emergency podcast for you this afternoon and our guest today is none other than Ron John Roy he is the author of Margins on Substack go follow him there Ron John

welcome to the show what a day what a week what a day so um We're going to get into all the financial stuff as we go on in the show. But I just want you to address the, well, why don't you, first of all, tell us exactly what's happening with Elon, trying to buy Twitter. And, you know, there's been so many people saying that, like, this is actually a great thing for Twitter. It fundamentally would give it a, you know, a kick in the butt that it needs to innovate and actually address the speech issues that it has, et cetera, et cetera.

So why don't you start by taking this through what happened and whether you believe some of the arguments in favor of Musk being in there and shaking things up. All right. So today, Elon, we woke up. The news was that he was making a hostile takeover attempt and willing to buy Twitter at $54.20 a share, as you said, at a premium over it's where he was trading around 46. And remember, it was down around 32 before a few weeks ago. And we all found out Elon was buying up shares of Twitter. So clearly the stock has jumped up a good amount on.

all this kind of news, is it good for Twitter if Elon Musk were to take over? I'm going to be honest, it's hard for me to even answer that question because I think the reality of is he actually seriously going to take over Twitter? Is that even a possibility? What could that even look like? I think there's so many questions that aren't properly asked or addressed that it's hard to even start getting into the hypotheticals around what would an Elon Musk Twitter look like. Because remember, I mean, think about the last few weeks, Parag trying to play friendly. I mean, what it must be like to be a Twitter employee right now, just the complete uncertainty and unpredictability around it. I can't imagine, I can't even fathom what it would look like to run smoothly that we would

ever get our edit button or whatever from the product side. Look, we're going to get into all those hypotheticals, but just try, okay, because the question that I'm getting, a lot of the feedback that I'm getting today in some of these posts are, and anyone who's tweeted about this or shared anything on social media has gotten this feedback. And that is that, you know, Twitter has been restricting speech and it's about time someone came in with libertarian views and allowed anyone to say anything that's legal on the platform. And this is a, you know, a big improvement for Twitter, a big improvement for the world. Let's just put our heads on our hypothetical hats on. We're going to, you know, pick it apart over time over the course of this conversation.

But like, let's put our hypothetical hats on and say, well, okay, Elon Musk is running Twitter. Is that better for Twitter? Is it better for the world to end up in that situation? I'll bite. I'll bite. I actually think the last six to 12 months, Twitter, the company, has completely turned itself around from a product standpoint. I mean, you know, there's the famous Zuckerberg, Twitter's a clown car.

crashing into a gold mine line. You know, for so long, it was just succeeding in spite of itself. But from a product standpoint, the last six, 12 months, spaces is amazing. I think Twitter blue, maybe I'm one of the only people out there, but I think it's actually worth the $3 a month. And I was very excited to see, you know, once they establish that subscriber base, what additional features could they add.

I really think it feels like for the first time in the last decade, Twitter, the company, Twitter, the product is moving like a proper tech company, is moving at the pace that the Facebooks of the world had for years. So I think that from a pure product standpoint, this is going to stall out all that progress already. I can imagine whatever progress has been made is going to completely halt, is going to be incredibly difficult. And from a free speech standpoint, what possible good can come out of, let's say Trump's allowed back on, let's say all the trolls are reinstated. Is that better for the product? Is that better for the company? Is that better for engagement? I mean, it's like the vague notion of, is it like,

will this be better for society? It's almost impossible to understand because I do not think it would be better for the platform and the product if the trolls are unleashed and uh everyone is allowed back on the platform and the muskian uh view of free speech which i do not think is free speech uh was kind of took over the platform okay the the counter argument that people would make to that is like oh here's like you know um you know someone who believes in censorship on the platform and actually we can't live in a just world and a world where people um you know see each other eye to eye if so many people are bands for views that people who run the platform don't agree with. Yeah, but Elon Musk does believe in censorship. Elon Musk goes to China and does an incredible amount of business there and then

tweets about how China has, from an economic prosperity standpoint, has done incredible work while sitting here in the U.S. and being able to tweet memes about Joe Biden sleeping and going after the political leaders domestically, being very, very conscious and cautious of how he speaks about other authoritarian regime. So he's not, so the idea that if he is running Twitter, it becomes a bastion of free speech, I do not think it's the case. I think it would be, again, this very specific version of free speech that actually is not free speech at all. So I do think that, I mean, it would be just a different type of censorship. Again, like not being, feeling comfortable to speak because if you say something in an army of online trolls will harass you is a type of free speech

suppression. I would argue that Elon Musk is okay with that and his vision of the platform would allow for that. And I would view that as free speech suppression in its own form of censorship. So I think it's just competing views of what is free speech. Right. And some people would say, you know, okay, well, you know, just take the beating. If you stand by your views, then take the beating from the trolls. Okay, one last question. I don't know. I'm still trying to figure out how to think about it. One last question for you about this. Then we'll move on to the financial stuff. accountability. I've made a point a couple times that you are more accountable if you're a public company than if you're privately held. People have said that Twitter has not been accountable at all,

that their decision making is still concentrated in the hands of a few people in that there would be no difference between having it be public and having it be private under Elon Musk. What do you think? This is a really interesting question that I've grappled with because again, if there were founder super voting shares, which is something typically. with tech companies, I think, is not a good from a corporate governance standpoint, they would be better protected against an oligarch slash Elon Musk or whatever, you know, rich person taking over the platform. So, so this is a really interesting question from that standpoint. From, I don't think the public versus private market accountability question necessarily makes

sense because, again, it's not like it's still a constant black rock vanguard. I mean, the three big, you know, like index funds hold 28% of Twitter. It's not like Twitter is actually owned by millions of individual shareholders who are going to speak together in a common voice when it's a public company. So I think if it went private, if it went public, I don't think it's going to make a huge dent in terms of whether it finds itself accountable or not. Yeah. And I'll argue, make the argument that it will be more accountable.

Elliott Management, the activist investor in 2020, bought just 4% of Twitter. and was able to spark all those product changes that you mentioned at the top. So I do think that it's definitely more accountable as a public company than a private company, although with speech is difficult. It's not as very difficult for investors to get involved in speech. Sometimes you've got to own it if you want to help set the policies. So, you know, that's one thing to consider. Let's talk a little bit about the funding because this is one thing that you and I have been back and forth about,

I think is important to bring out here, that Elon Musk has made this offer to sell it to buy Twitter, But again, it's kind of why you didn't want to address the question in the first place is because where's the money? So can you talk a little bit about what the mechanism of this sale would look like, whether you think you can pull it off? Yeah. And, okay, this is the biggest question. Does he have the funding? Because remember, is the funding secured? Is the question that's plagued Elon Musk since 2018 and the famous 420 funding secured tweet and then subsequent SEC investigation?

pulling together the $42 billion. Remember, Elon Musk does not have liquid $42 billion. Bloomberg actually had a really good piece. I think he has around $3 billion in cash right now. So he would have to find some other way. Obviously, borrowing against his Tesla shares is one route. But to find a bank or a consortium of banks that will lend $40-odd billion against an incredibly highly volatile stock that's already up 17.

100% and was, you know, 800% lower just a year and a half ago. I think, I mean, banks typically can do anything, but I mean, I still feel you'd be hard pressed to find institutions that would lend to him. So then are there other private equity firms? Some people are saying Elliott could be, you know, part of this, Silver Lake, there was some talk. I would a private equity firm, again, when Elon Musk is openly saying that the actual financial, value. He doesn't care about, you know, like, and the way he would run it if free speech becomes this central selling point and mission of his, and that necessarily counteracts against the potential financial value of the company. I mean, if you're a private equity company,

is that a risk you want to take? So, so again, remember, the SEC filing said funding is it, this, the takeover is contingent on anticipated funding. So there's no clear indication that there is funding. How he would get that funding, again, he cannot, just because he's worth $200 to $300 to $300 odd billion, he cannot actually spend $42 billion of his own money on the company. So I think, color me, highly skeptical that there is funding secured already. Right. And I mean, obviously it's not because that's what was said in the financing. So in the document, maybe he has it on the way, but it doesn't seem like it is. I mean, he even at the TED conference mentioned that he doesn't have the money yet so uh shrug um

yeah i mean and the TED talk obviously i mean today was to have the TED talk just show up and you know somehow we had all forgotten or not known and then of course i mean again he is a master of communications and public relations like was the takeover bid planned alongside the TED talk probably I mean, I have to think so. It can't just be coincidence. Yeah. And we're going to get into what exactly is Elon doing here in the second half, but I have a couple more tactical questions to ask you. The first is, do you think the board rejects his offer? Yes, I do. Again, it's not a great offer. Even the premium. The most telling thing, I have never seen the stock. I'm not sure if it closed down, but it was trading flat to down after the morning pop.

It did close down, I think. Yeah. Yeah. When you have a takeover offer, that's at a decent premium, you never see a stock trade down. So I think the market has kind of spoken as well whether they think this actually could be a real thing. And again, the board as it is, it's not a great deal. It's not, if it was, I mean, it's 75, 70 somewhere around there and it was at a significant premium above where Twitter was trading in the past year, I think maybe you would have to be taken more seriously. But again, obviously there is the, the tactical concern around if Elon sells his 9.2% stake,

is it going to push us right back down to the 32 level where it was before all this started. So, I mean, it's obviously, it's not a great time to be a Twitter board member, but I do think they will reject this. Down 1.68% today. That's how Twitter closed, which is amazing. It's crazy. Elon Musk is making a takeover offer. Okay, you hinted at it.

Let's talk about what happens if Elon sells his shares. What goes down on Twitter? I think this is the most likely scenario. And again, this entire, I mean, in many ways, he started buying in the 20s and into the 30s, and then he announced late that he had bought the shares and the shares jumped to 45. And now he's saying he'll take it private at 54. I mean, he can start selling his shares and he will have made a lot of money, like actual, you know, liquid profit. and it'll definitely hit the shares.

It'll definitely push them, I think, back to where they started before all of this. And again, and this is honestly one of the most troubling or sad parts of this is. Twitter, the company, seemed to be getting their stuff together. And now their stock is just going on this insane meme stock roller coaster. And everything is completely out of their control. And trying to just evaluate the business as a normal business is impossible. So let's talk about that parallel with meme stocks before we go to break. So I think you mentioned that when GameStop, when was soaring, you said, oh, if I feel bad for the poor CFO who's going to be trying to catch a falling knife.

And sure enough, that's what happened. And he ended up leaving the company. If I recall correctly, maybe you can, you know, refresh my memory on that. Is that going to happen? Like, what's going to happen to the executives at Twitter? And are they going to experience some of this meme stock whiplash that. Yeah, yeah. Yeah.

Yeah, exactly. So the CEO and CFO of GameStop left after the whole up and down cycle of the stock. They left with very, very healthy golden parachute. So I'm not shedding a tear for either of them. But again, if you, when your stock jumps off of the back of, I don't want to say nonsense, but, you know, some kind of like, again, memes and viral tweets, clearly there's going to, be some whiplash in the other direction and trying to, again, think about anyone who's run even a small business. Now imagine running a giant multi-billion dollar business, trying to make financial decisions and projections, thinking about if you're the Twitter CFO, you know, you just invested in spaces. I know Twitter's starting to launch a lot around shopping. Are you going to invest in shopping? How much will you invest in shopping? Try making those decisions when you have no idea what your actual company will be worth in the next one hour or two days or one week.

I mean, that volatility, it's not intrinsically a good thing, even though your stock is going up. Ron John Roy is with us. He writes margins on substack with John Durek. You can find it at readmargins.com. Okay, we've talked a lot about what Elon's actions might lead to. We're going to talk a little bit more about his motivations on the other side of this break. let me tell you about The Hustle Daily Show,

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like the one you're using right now. And we're back here on big technology podcast with Ron John Roy. He writes margins on substack. One of my favorite newsletters, got to go check it out. And let's talk a little bit about what, you know, what Elon's up to. Because, you know, we talked a little bit about how he doesn't have the money, at least not as of yet, according to his SEC filing. So what I'd really like to know is why he's doing this. I mean, the man must note that it's a long shot bid.

So why even go through the process in the first place? all right that that cool trying to trying to decipher why with Elon Musk is obviously a bit of an uphill battle you can do it Ron John I know you yeah well okay so so I've had a bit of a theory um Elon Musk in conjunction with when he started buying shares of Twitter at January 31st I believe basically end of January musk and I had written and spoken about this before any of the Twitter news came out. Musk was escalating his own battle with the SEC. Now, there's a 2018 settlement where after his funding secured 420 tweet, where Musk would have a Twitter babysitter, all his tweets that were about material information relevant to Tesla, would have to be overseen by some vetting process. He didn't like that. He openly said he didn't like that. Even in the TED Talk today, he was

talking about this. And he hasn't shown any third party any of his tweets so far from his public statements, at least from my understanding. Yeah, no, again, the most ridiculous part of this. They just say whether or not the tweets went through the process. There's no transparency as to who the legal oversight is, what it looks like. It's the most ridiculous thing. And that's actually part of the interesting thing about how he chose to escalate, because the SEC was completely hands off.

Yet, February 7th, they sent a letter to a judge saying, this is chilling his freedom. of expression. And then in early March, they asked, they filed a legal motion to have a judge throw out the original settlement saying that he was coerced into it, again, which he was talking about today in the TED Talk saying the SEC had a gun to, it was like having a gun to a child's head. So he very much escalated this in February and March while he was concurrently buying Twitter shares. And again, it's not like the SEC and legal filings. These aren't jokes. They're 20 to 30 page legal documents that are written out. It's not just a tweet going out. So he was taking a very, very methodical, concerted approach in escalating his fight with the SEC in tandem with

buying the Twitter shares. I can't imagine that they're completely disconnected. And I do think that Elon Musk looks at both things around his freedom expression. He viewed the SEC was you know, like muscling his ability to tweet and his exercise free speech. So he looks at all this together. So I think that so much of this has had to do with his ability to tweet freely about his company. I think he believes that through this entire process, he's going to steamroll the SEC and get rid of the original thing and settlement and be able to tweet whatever he wants about and whenever he wants. That's where I think, I think that's underlying a lot of this. Yeah, I see the argument. Hey, listen, I own the platform. You're going to tell me not to use my own product? Is that kind of what the argument would make? I mean, think about, imagine you're the someone sitting at the SEC. Elon Musk tweets something just egregious about like Tesla's production numbers or Tesla's reopening the Chinese factory in Shanghai or whatever, you know, like something incredibly material. And then you have to go to the Twitter safety team and ask them to take it down. I mean, and Musk is imagine he's the 100% owner.

of Twitter. Who's going to do that? I mean, he basically, to me, Elon Musk's Twitter account is his single most valuable asset, and he has to protect it at all costs. Tesla does not work economically without Elon Musk's Twitter account. So I do think that

a big part of this is kind of maintaining the protection of his Twitter account so no one else can touch it, limit it, tell him what to do. I guess like one of the things I'll bring up is, you know, some people might be saying to themselves, hey, listen, Elon Musk is the best business person in the world right now.

He successfully built a company that sends spaceships up to space and lands them. He's popularized electric vehicles in the U.S. with a very successful company. Shouldn't we be celebrating the fact that he is going to bring his efforts to Twitter? And in fact, I was watching the, you know, the TED conference today. and Elon did have some well-thought-out ideas for how to change a Twitter product. For instance, allowing you to edit tweets, but once you do it, you lose all retweets and faves, you know, basically starting over so you don't propel misinformation. You don't have to send someone to the moon to figure out that retweeting, if you edit a tweet, you lose all the retweets. No, disagree. That is rocket scientist.

That is rocket science. Okay, okay. But talk about, again, the fact that Elon is, you know, is the best business person of our generation, according to many. And this should be, why, it should be universally celebrated if you think about it through that lens. What's your thought? No, I agree. I mean, this is what makes every single conversation about Elon Musk complicated is he did popularize electric cars at a time when no one else was pushing it. He moved the entire industry forward. As you said, what SpaceX does is incredible. So, yeah, I do agree that in terms of, like, he has done impossible things. However, Twitter specifically, and the idea is that he supposedly is trying to bring to the platform, I don't think are setting the company up for any kind of success. It's a different company.

Their challenges are different. Again, because very specifically, this is not solving insurmountable engineering challenges or landing a rocket on a tiny platform, it's doing actual product work and rolling out shopping products and making your advertisements better and really, really standard nuts and bolts things that actually you don't need a visionary for.

You need a Tim Cook-style operational person, I think. Interesting. Okay, one last question on the SEC stuff before we come in for landing here. The SEC, you know, theory makes a lot of sense if Elon was actually going to buy the company. but again, it doesn't have the money.

So how do you square those two things? Yeah, I, that's a good question. I think that by making all these gambits of making his connection

to Twitter so in the public sphere, if tomorrow, and actually like in early March, I'd thrown out the idea that the SEC might actually de-platform Elon Musk as a reaction,

which again, it sounds kind of crazy in some ways, But then it doesn't sound crazy when if someone, think about it before he offered to buy Twitter and all this comes up, if I'm to tell you that someone repeatedly used the Twitter platform to break securities laws, the idea that maybe they lose the access to their Twitter account doesn't seem so crazy. But now you throw in, Elon Musk has just so closely tied himself to the platform instead of just a power user that breaks security laws on the platform. He now is part owner, potentially the full owner. He's just inextricably linked to it. So I do think now the idea that the SEC could ever limit his tweeting, de-platform him,

he can say whatever he wants and no one can stop it now from the SEC side. Or if they do, it's going to be a much, much, much bigger deal. Absolutely. Okay, that does make a lot of sense. Last topic here is I was in a Twitter space today. Alex Heath from The Verge mentioned that, you know, this all might be Jack's ploy to get back at Elliott management. You know, he, they wanted him out of the CEO role. He's not, he's now left.

There's massive expectations against Twitter. He's friendly with Elon Musk. He celebrated Elon Musk. And so, therefore, maybe this is his, you know, revenge on, you know, getting, you know, potentially pushed out from his baby, his platform. What you read on that? I like that theory. I mean, no, no, okay, okay, hold on. It's not impossible.

Not impossible. Yeah, well, Elon as a chaos agent, I think is a place not the most unreasonable theory. As you said, clearly Jack Dorsey is not happy with Elliott management and being pushed out of his company. So yeah, no, no, I don't think that's a completely unreasonable theory. Honestly, I mean, this is another kind of angle on this, especially around the free speech absolutism. I mean, what do you think is one of the most important news stories other than the Twitter saga that's come out about Elon Musk in the last few weeks? I don't know. You can tell me. All right. Obviously, that's a leading question. Yeah. So the Wall Street Journal, Wall Street Journal reported March 22nd, there's a congressional inquiry led by a Republican about SpaceX and its ties to China.

Oh. Because there's national security implications that SpaceX and. has government contracts, has sensitive national security information, and Elon Musk is very cozy in doing business with China. And basically it's just an inquiry, again, led by a Republican from Utah around this. This topic of his relationship with China, I think, is incredibly important. And again, it's another avenue that's escalating. And especially around the question of free speech absolutism, he is not a free speech absolutist. Just because he says he is, everyone publishes Elon Musk believes in free speech, believes in free speech. No, he doesn't. Every way he speaks about the Chinese government celebrates him doing business in China. He's very, very smart and cautious about

how he communicates. So clearly, he is not an absolutist in any way in that regard. So I do think, like, what value do other, whether it's countries, whether it's Jack Dorsey, it's like kind of unleashing Elon as this chaos agent into Twitter, the platform, into kind of the American business sphere. I think it's an important question because it does. It makes our entire capital market system look ridiculous. It does look ridiculous. Right now. I mean, every time you're on, we talk about how it's saying it is by the way. Wait, wait, wait, hold on. Every time I feel we end the podcast with, can it get stupider? Here we are. And here we are. Here we are. Exactly. Yeah. And honestly, this is where John,

who's from Turkey, we've talked a lot about the emerging marketification of the United States that a lot of the kind of like rule of law, these really ingrained standard things that make the U.S. an incredible place have been degrading over the last few years. And to me, again, the world's richest man is trying to buy a platform that our government regulators trying to limit him on. That should not happen. That just absolutely should not happen in the U.S. And in terms of our capital markets and what it says about who is in charge and what ability people have to actually regulate things and have stable financial markets, it's insane. Yeah.

So to me, that's like this entire space around what is it making us look like from a capital market's perspective. What's it making Twitter the company look like? It all feels like it's just making everything a joke right now. Yeah. And speaking of the way that Elon will uphold speech, I mean, I shared this on Twitter earlier, But I wrote the certainty that some people have that Elon will follow through on their vision for content moderation on Twitter is freaking amazing. He does talk a big game.

But once he's in the driver's seat, we see what it goes. And like the fact that people are 100% certain, he's going to moderate it exactly as they want to me is. Well, that's why Elon Musk is so good at social media because he is kind of like a blank canvas upon which everyone can project their own personal biases and wants. And that's the best person. social media. So that's how it works. And again, every analysis on this Twitter, I'll admit, I'm even

my whole thing, if you've been reading margins, is about the need to better regulate financial markets and bring some sanity to them. And so clearly I'm projecting that onto him and his battle with the SEC in this entire saga. If your

thing is content moderation, bringing back the Babylon v. or Trump, you can do it as well. You know, then that's why he's so good. Do you think Twitter management has handled this well? I mean, they look like kind of foolish for welcoming Elon with open arms. And then like, have they read his account before? And now like the employee base, I mean, I'll tell you, I've been speaking with them.

And it's a disaster. I think the mistake here is act as the assumption of good faith, which again, as you said, if you read his account, if you followed him, it's a crazy assumption. but were they acting in the assumption of good faith that he really was meaning what he was saying, that he really was going to be like a friendly 9.2% never above 15% shareholder? If they actually were, I think it was a very bad play and bad move on their part. But on the other side, if they really just have no other options, I mean, that's also possible. It is interesting because right now you see that they're vulnerable with the new.

CEO who is not a big personality or not heavily, you know, there's no prominent board member. Brett Taylor of Salesforce, I believe, is the chairman, like, has not said anything publicly either. You know, there's no singular leader who's able to kind of speak up about this. And I do think that puts them in a very weak position. Exactly. Yeah. And there's definitely been like some points that I saw Twitter employees today tweeting that, like, you know, messaging to just stay the course is the wrong idea. You got to actually talk about this stuff.

Yeah, yeah. If you're sitting there as an employee, you need to hear something about the future of your job and company, I would think. Absolutely. Okay, prediction for where it goes from here. I think like so much other drama that comes out of Elon Musk, I honestly think this kind of fades away. I think there's a good month of discourse over who can take over Twitter. I think maybe what could be interesting is some other like a Salesforce or Disney or some other companies that have in the past been rumored to be buyers of Twitter come into the fold.

And then I think in a month from now, we all move on to the next thing and forget this ever happened like so much of so much else of what happens and the discourse on a day-to-day basis. Yeah, I think that's the best bet. Ron Joroy, thank you for so much for joining. Really appreciate you being here. Thank you. You can fight Ron John. Ronjan X-R-R-A-N-J-A-N-X-R-O-Y on Twitter or read Margins.com.

And, again, what a great conversation last minute. But glad we did it. We will be back. I promised you Charles Duhigg. He's coming on next Wednesday. We're going to talk about SPACs, another crazy market situation that has gone up and then gone down. So I hope you subscribe to the podcast if it's your first time or join us again on Wednesday. If you're a long-time listener, appreciate you being here.

Thanks, Nate Gwotny for doing the editing of this emergency show. Appreciate that. Thank you, LinkedIn, for having me as part of your podcast network. And once again, thanks to all of you. Listeners, appreciate you being here with us week after week. And looking forward to seeing you in just a couple days.