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This might be a simple question but the answer escapes me.

Elon Musk wanted full control of Twitter, so he bought every outstanding share and made the company private.

Couldn't he have achieved the same result by buying only 50%+1 while leaving the company public, so he could control the board like Mark Zuckerberg controls Meta?

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    I’m voting to close this question because it is not about personal finance.
    – Dilip Sarwate
    Nov 5, 2022 at 14:20
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    What would be a better SE forum for understanding how companies and the stock market work?
    – Martín Fixman
    Nov 5, 2022 at 14:27
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    One important difference is that with 100% ownership he can take the company private and do whatever he wants to the company without having to bother with a board of directors or required reports to regulators.
    – Brian Borchers
    Nov 5, 2022 at 14:49
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    This question shouldn't be closed. It is helpful for normal people who just own stock to know how this kind of thing works.
    – minou
    Nov 5, 2022 at 17:07
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    @DilipSarwate Twitter was a publicly traded company, making their stock an issue of personal finance. If individual members of this SE personally owning stock in a company as part of their finances doesn't make understanding how that company works on-topic, then a lot of questions are off-topic. Like, is "Why do companies do buy-backs instead of dividends" on-topic? That's a corporate finance question.
    – Acccumulation
    Nov 6, 2022 at 1:43

2 Answers 2

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Summary: Twitter's board had good reason not to let Musk do this, and had tools to prevent him from doing it.

The board of a corporation has a fiduciary duty to preserve the value of all shareholders, and not just 51% of the shareholders. To your question, it would have been possible for the board to let Elon Musk acquire a controlling (51%) interest in Twitter stock, by buying that stock on the open market, but that leaves the 49% of remaining stockholders with a rather unequal result of now having stock with no voting power, but not receiving any compensation (since they didn't sell). Maybe that's fair, maybe it's not, but it's the kind of thing likely to land the current board in a bunch of lawsuits which they don't want.

Instead, the outcome the Board wants is for Musk to make a "tender offer", where he agrees to buy all the stock, not just 51%, at a fixed price (which is what actually happened). This satisfies their fiduciary duty to all shareholders, since all shares are equally treated.

It's worth noting that the board took concrete actions to make Musk make a tender offer (as opposed to buying his way to 51% on the market). At the point at which Musk disclosed his initial 9% stake, the board introduced a "poison pill", which is a mechanism where if Musk (or anybody, but nobody else was trying) acquired more than x% of the stock, that shareholder's stock would become diluted (by giving all other shareholders a dividend creating new previously unissued shares). The board later retracted this poison pill once Musk began making his tender offer, having served its purpose.

Back to fiduciary duty, it seems like the poison pill clearly violates equal treatment of shareholders, because they're diluting a single shareholder's shares. However, US courts (specifically Delaware courts) have consistently upheld poison pills, because it protects the wider fiduciary duty to not allow 49% of shareholders to get screwed in acquisitions.

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    Also, regarding votes to close as not relevant to Personal Finance: understanding why corporate boards can't make a decision to just zero the value of 49% of stockholders is relevant to understanding the value of your stock during an acquisition process.
    – letterX
    Nov 5, 2022 at 17:25
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    This answer makes clear how it was in the former board's and former shareholders' interests to force Musk to buy 100% rather than 51%, but is it not also in Musk's interests (notwithstanding that 100% costs him a lot more)? Besides the reasons mentioned in the other answer, if he used a 51% stake to fire the whole board of directors and install himself in their place, the other 49% of shareholders might still sue him (in his capacity as sole director) if he acted in a way that negatively affected the value of their shares.
    – kaya3
    Nov 6, 2022 at 3:00
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    It's a wonderful example of how running businesses for "shareholder value" is a terrible way to run a business.
    – Jack Aidley
    Nov 6, 2022 at 9:58
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    @JackAidley how is this situation an example of that? I'd say "If you want to run the business, you have to compensate all the current owners rather than half" is morally better than "You can take over a business and leave 49% of it's previous owners in the lurch"
    – Caleth
    Nov 7, 2022 at 11:34
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    @Barmar: There are controlling interests and controlling interests. If you have 51% of stock, then you definitely have a controlling interest and nobody can take it from you (except via some unusual mechanisms like bankruptcy). If you have less than 50%, you might still be informally described as having a "controlling interest" if most of the other shareholders are random retail buyers and mutual funds (i.e. there's no single other entity who controls anywhere near as much stock as you do), but such an interest could be contested by a sufficiently resourceful activist investor.
    – Kevin
    Nov 8, 2022 at 8:13
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The goal was to make the company private.

  • They don't have to file quarterly reports with the SEC.
  • They don't have to report the profitability of the company to the public.
  • If they have a bad quarter the stock doesn't change.
  • There is no need to have an annual meeting where stock owners can submit proposals to force the company to act a certain way.

Public companies have to do those things, private companies don't. 51% ownership held by him and his partners wouldn't have allowed him to avoid those things.

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    There is no need to have an annual meeting where stock owners can submit proposals to force the company to act a certain way. Which has definitely been happening at Tesla. The shareholders almost always vote the way the Board recommends/against the activist proposals, but it definitely complicates things.
    – manassehkatz-Moving 2 Codidact
    Nov 6, 2022 at 2:56
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    If they have a bad quarter the stock doesn't change. How does a 100% private company have shareholders anymore?
    – john
    Nov 6, 2022 at 17:09
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    @john 100% private company does have shareholders. Just not the public one. In this case Musk is the only shareholder.
    – vasin1987
    Nov 6, 2022 at 19:16
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    The market value is no longer important, that is one of the benefits of going private.
    – mhoran_psprep
    Nov 7, 2022 at 11:25
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    @vasin1987 correction: Musk has full control but he's not the only shareholder: mobile.twitter.com/Alwaleed_Talal/status/1585975226567110656
    – JonathanReez
    Nov 7, 2022 at 15:40

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