Vinson & Elkins LLP Shareholder Activism practice Co-Head Lawrence Elbaum joins Yahoo Finance Live to discuss reports that Elon Musk’s Twitter bid will be finalized this week, the impact such a deal would have on the shareholder activism space, and the outlook for Twitter.
Video Transcript
JULIE HYMAN: Twitter and Elon Musk are in discussions to finalize a deal as soon as this week, maybe even today. That's according to multiple reports. Musk, of course, made an offer to buy the company for $54.20 a share on April 14. And he said at the time, that's his best and final offer. Joining us now to discuss how this deal is a reflection of shareholder activism and how it could also reshape it is Lawrence Elbaum. He is Vinson & Elkins co-head of Shareholder Activism Practice.
Lawrence, thanks for being here. So I've been-- I got to admit, I've been watching Musk's Twitter feed to see if that's how a deal might be announced. And as you look at how this has played out and as a reflection of shareholder activism, is this sort of what companies have to brace themselves for now that things will sort of be more in the public sphere in terms of trying to pressure them?
Related Videos
LAWRENCE ELBAUM: Well, first of all, thank you so much for having us here today. We appreciate it. Look, the phenomenon of unsolicited bids and poison pills is not an uncommon phenomenon. But I think what we're going to see more of now, particularly in the industries that have been recently corrected in the markets, I think we are going to see a lot more unsolicited bids. A lot of companies that have reverted back to either being undervalued or massively undervalued because of the market corrections, they probably were overvalued last year.
And I do think that there will be a lot of copycat activists, activist hedge funds, private equity funds, and high net worth individuals that are going to be using the same means that Elon Musk used here, using various channels to put pressure on boards to transact, given the uncertainty in the markets. And those boards need to be very well prepared.
BRIAN SOZZI: Well, Lawrence, to that end, do you think we'll see now a wave of billionaires follow Musk down this route of trying to buy public companies that they like, for one reason or another?
LAWRENCE ELBAUM: Absolutely, absolutely. I don't-- I think that this is just the beginning. And by the way, it's the beginning of a wave. It's not the first time this has happened. There are lots of billionaires that have bid for companies in the past. There are lots of billionaire activists that commonly bid for companies. I think what is most interesting here is the source of this bid initially didn't appear that it was about Elon Musk finding the company undervalued.
It appeared to stem from Elon Musk being unhappy with the way the company's technology was interfacing with his communication objectives. So I think that's interesting. The question is, are there going to be more billionaires coming out of the woodwork unhappy with their customer experience, looking to bid for companies to improve that customer experience?
JULIE HYMAN: What do you think companies need to be doing about this? Do you think that if companies are underperforming, they need to be on the defensive in this case? Or should they be open to all comers who have these kinds of suggestions?
LAWRENCE ELBAUM: Look, I think that, first of all, the frustrating lawyer answer is, it depends. Now that I got that one of my chest, look, boards always need to be prepared and on their toes. Well advised boards are working with investment banks in periods of peace to understand and measure their intrinsic value against their value in the markets and have a good understanding of what the company is worth and what the other opportunities are outside of their strategy.
And that way, when someone shows up, like Elon Musk or another unsolicited bidder, friendly or hostile, they can engage on a valuation discussion in real-time. The boards that get into trouble and therefore are subjected sometimes to proxy fights or public scrutiny are the ones that don't have a good handle on valuation that aren't working with the right team of financial and legal advisors to be able to do that valuation in real-time.
They get caught flat-footed. Sometimes their knee jerk reaction is to reject or not respond. And those boards can get into trouble. So having that team involved in peacetime in advance is quite important. That way, when someone does ring the bell, the board knows exactly where the bat phone call needs to go to.
JULIE HYMAN: And Lawrence, I'm going to put you on the spot again and ask you a sort of general question, which is, by and large, I mean, Brian and I talk about boards all the time that don't seem to be doing what they should be. In your experience, have things gotten better or gotten worse, stayed the same in terms of board sort of oversight and due diligence?
LAWRENCE ELBAUM: Well, again, it depends.
JULIE HYMAN: It depends.
LAWRENCE ELBAUM: Well advised boards are asking questions, asking the tough questions, and then questioning the answers. The process starts the day after a company's annual meeting. You have so much data as a board. You have your annual meeting results on directors, on compensation, on other proposals that are put before shareholders. You have proxy advisory firm reports that are a good barometer for your shareholder base from ISS and Glass Lewis.
And a board can analyze all that data, starting before they go on vacation over the summer. They could start that analysis and then kick off in the fall doing what they need to do to implement the feedback that they've been getting. I find that more boards are interested before the summers, right after those annual meetings, and starting to process that data so that they can proactively incorporate shareholder feedback and get ready for the next proxy season.
The boards that really wait several months to look at that feedback or don't look at that feedback at all until they get the letter from an activist, those are the ones that are the most vulnerable. And those are the ones that find themselves reaching out to institutional shareholders when they need their votes in a time of crisis, as opposed to reaching out to them in a time of peace where they can cultivate a relationship that will probably lead to a better voting outcome in the future. So it really is split 50-50. I think more boards are aware that they're getting feedback and that shareholders are being more critical of their oversight function. It just depends on which board you get.
BRIAN SOZZI: So very true. Lawrence Elbaum, Vinson & Elkins co-head of shareholder activism, good to see you this morning.