Maverick's Machinations: Musk, No Longer Twitter's Largest Shareholder, Gets Shot Down By Saudi Arabia's KHC; Will He Succeed In His Bid?

Since Elon Musk has offered to take over Twitter for $43 billion, he has slipped down from the perch and is no longer Twitter's largest shareholder.

Vanguard Group has recently upper their stake in the social media platform. Vanguard Group is an asset management firm.

According to latest filing publicly available from the US Securities and Exchange Commission, Vanguard now owns 10.3 per cent of twitter, or 82.4 million shares.

Vanguard isn't in the business of making a directional bet on Twitter. Majority of Vanguard's asserts are in index or other 'passive funds'. They often side with management of voting issues and do not advocate for change like an activist investor (think Elon Musk) or hedge fund might.

In a regulatory filing on Thursday, Musk proposed to buyout the tech giant for $54.20 per share. That marks a 38 per cent premium to the social media’s last trading price prior to the disclosure of him becoming the largest stakeholder in the company on 1^st April, which he no longer is.

Earlier this week, the billionaire rejected the offer of a board seat in the company. That move reportedly highlighted his bigger intentions given that becoming a board member would have limited his ownership in Twitter to a little below 15 per cent. This was Twitter's attempt to enter into a detente with him but Musk had other plans.

“Since making my investment I now realize the company will neither thrive nor serve this societal imperative in its current form. Twitter needs to be transformed as a private company,” Musk’s letter to Twitter Chairman Bret Taylor read.

"It is a high price and your shareholders will love it" it went on.

He added, “My offer is my best and final offer and if it is not accepted, I would need to reconsider my position as a shareholder. This is not a threat, it's simply not a good investment without the changes that need to be made and those changes won't happen without taking the company private."

Morgan Stanley has been named as the financial advisor for this offer. Twitter’s response to this proposal is still awaited.

Since Musk made the offer, the Chairman of Kingdom Holding Company, which is Saudi Arabia's diversified investment holding company, rejected his offer. 'Prince' Alwaleed Talal, who is the chairman of Kingdom Holding Company, rejected Musk's offer on Twitter.

Saudi Arabia's Kingdom Holding Company (KHC) owns 5.2 per cent stake of Twitter, making KHC one of the largest shareholder of Twitter.

Musk responded to KHC by replying to their tweet. In his tweet Musk raised two questions, answer to one of which is obvious.

It is worth stressing that Musk asks in his tweet 'how much of Twitter does the Kingdom (of Saudi Arabia) own, directly and indirectly?'. This is important because whilst how much of Twitter the Kingdom Holding Company owns is public, if the Kingdom owns more than 5.2 per cent under a different name isn't public.

One must note that the general population of Saudi Arabia is quite active on Twitter and the platform is used by the monarchy to target and suppress critics of the regime.

The Kingdom's stake in Twitter isn't just another investment. As of now, that is the time of this article's publication, Musk has his reply to the chairman of KHC as the pinned tweet on his profile.

He has also tweeted another poll asking if the decision to accept/reject his offer should be up to the shareholders or the board.

Musk is offering to pay $54.20 per share. From the perspective of fiduciary duty, the goal of a company is maximising the profit for its shareholders. It isn't unrealistic to consider that at $54.20, a lot of shareholders will want to sell their share.

Twitter is a big name but as a company it isn't that profitable, nor is it able to attract advertisers, which is the basic business model of how all these social media companies make money.

Musk intends to change Twitter's structural business model, getting revenue through subscriptions.

As such, Twitter holds a significant amount of influence and many entrenched power bases use it to wield their power. The coastal elites in America are one of the examples. They have an interest to ensure that the nature of Twitter doesn't change.

From a shareholder's perspective, this is a good offer and Twitter would need really good reason to not say yes, but the real world is a lot more complex and companies like Twitter often do a lot more than just think about their fiduciary duties. Expect Twitter to throw all kind of roadblocks to stop Musk's bear hug.

Although Musk may have secured financing for his bid, it isn't clear that he will succeed. This is something that Musk himself concedes. If all else fails, Twitter always has to option of 'poison pill' to ward of Musk's bid.