On Monday, Elon Musk won unanimous support for his hostile takeover approach from Twitter’s board to buy the social media company for $44 billion, putting his personal wealth on the line. The world’s richest man will have his hands full, being also CEO of the rocket business SpaceX, overseeing tunnelling enterprise Boring as well as brain chip company Neuralink.
Patrick Reinmoeller, Professor of Strategy and Innovation at IMD, questioned to what extent Musk’s latest venture will distract him from day-to-day business at Tesla. “If you are leading a publicly listed company, you have a responsibility to shareholders and you shouldn’t disappoint them by being distracted by something else,” he said.
Tesla is still the only direct publicly listed company for investors to bet on the eccentric visionary. Their nerves are already being tested. Tesla’s stock shed $126 billion of its value after the Twitter deal was agreed, on fears the carmaker’s CEO would sell down his stake to finance the purchase.
His stock in Tesla forms part of the complex financing for the Twitter deal. Reinmoeller said his incentive now will be to keep Tesla’s share price as high as possible. One challenge will be achieving potential synergies between the firms in Musk’s sprawling portfolio.
“Cars, rockets, tunnels, robots, tweets… Musk’s interests look increasingly like a keiretsu,” said Reinmoeller. “He glues everything together with the sheer power of his extravagance,” he added, noting that Musk uses Twitter as a platform to lay out his moves. His Tweets have got him into trouble, but they have also moved markets.
Musk has turned Tesla from a struggling startup to a power player in the automotive industry. The company posted record profits of $3.3 billion in the first quarter. It harbours grander ambitions to sell 20 million vehicles a year by 2030, which would make it bigger than rivals Toyota and Volkswagen combined. Reinmoeller argues the firm needs a dedicated leader behind the wheel.
“If he is only the owner, that’s one thing. If he wants to actively run Twitter, that’s a different challenge,” he said. “I think he shouldn’t try to do these two things, he still has to beat the entire automotive industry.”
When the deal closes, Twitter’s current board will no longer exist and it will be up to Musk to choose the governance structure, as well as the management team and who will be chief executive. Reinmoeller insists the social media company needs a more committed leader.
He points to recent unsettling moves by activist investors to oust Twitter’s then CEO Jack Dorsey over his split responsibilities. Dorsey is also the boss of Square (now Block), the payments company he co-founded.
“Twitter suffers from attention deficit disorder,” Reinmoeller said. “There is no T for Twitter in FANGs or any other fancy acronym of the great tech success stories. It is languishing because it had a leader who had divided attention.”
Musk’s intentions for the social media platform are unclear. He said “free speech is the bedrock of a functioning democracy” as he outlined plans to loosen the platform’s content moderation policies, focus on making the algorithms open source and clamp down on spam bots.
Critics fear an increase in hate speech and a spread of fake news, attracting more users with extreme perspectives to Twitter. “While the platform has lost thousands of users since the take-over declaration, right-wing populists have been able to significantly increase their follower base,” said Julia Binder, Professor of Sustainable Innovation and Business Transformation at IMD.
She also worries that Musk’s takeover could increase the spread of climate disinformation. “It seems painfully ironic that the $44 billion he was willing to spend on acquiring Twitter resembles the budget of the Biden administration to tackle the climate crisis,” she said. “If the self-proclaimed climate leader would be serious about his environmental ambitions, the question is whether he could have spent his wealth in a more impactful way.”
The deal gets to the heart of a broader debate about censorship by large technology platforms. Reinmoeller said Musk has set the stage for a regulatory battle over the future of social media platforms, with Brussels having already warned that he must follow rules on moderating illegal and harmful content online.
Thierry Breton, the EU’s commissioner for the internal market, said this week: “Elon, there are rules. You are welcome but these are our rules. It’s not your rules which will apply here.” The comments came just days after Brussels agreed to a new piece of legislation that will force Big Tech to more aggressively police online content. Breaches risk hefty fines or even a ban.
There are also concerns that Musk’s takeover could hurt Twitter’s advertising business, worth $4.5 billion annually, or more than 90% of revenues. Reinmoeller said advertisers will not want to place their ads alongside harmful or offensive content. But he added that Musk’s free speech ethos may be an attempt to boost user growth after Twitter reported disappointing numbers and an annual first-quarter loss of $221 million. It subsequently admitted to overstating user numbers.
“There is a very commercial rationale behind this: free speech has the broadest possible market potential,” he said.
More fundamentally, the deal raises the question of how much power a single individual should hold in steering public debate. “The ethical breaches in the case of Facebook, where Mark Zuckerberg acts pretty much independently of the board and shareholders due to an imbalanced voting structure, should serve as a warning,” Binder said.
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