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MarketWatch First Take: Twitter put Elon Musk on the board so he wouldn’t pull another Tesla

Twitter Inc. avoided a potential hostile takeover of the company by Elon Musk by giving him a board seat, which could keep current executives from being the next Martin Eberhard.

Many still mistakenly think Musk founded Tesla Inc.
TSLA,
-3.71%
,
but it was actually Eberhard and Marc Tarpenning. Musk, flush with money from his stake in PayPal
PYPL,
-2.75%

after eBay Inc.
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-0.78%

bought that startup, invested $6.5 million in Tesla in 2004, becoming its largest shareholder and chairman; he eventually received a belated co-founder label, as a result of a lawsuit, and took over as chief executive so he could run the electric-vehicle company as he sees fit.

After Musk disclosed that he had acquired 9.2% ownership of Twitter
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+3.76%

on Monday, making him the largest shareholder, Twitter executives managed to block a similar pathway for Musk. Twitter disclosed Tuesday morning that it has named Musk to its board of directors, with the caveat that he not amass more than a 14.9% stake in the social media platform.

“Twitter had two options — be hostile, or embrace,” Dan Ives, a Wedbush Securities analyst, told MarketWatch on Tuesday. “I think that is the smart strategy, rather than going after this in a hostile way that would not end well.”

See also: Elon Musk is now Twitter’s largest single shareholder — Will he be able to overhaul the platform?

Musk’s disclosure of the Twitter stake suggested it was a passive stake, but as The Wall Street Journal pointed out, those disclosures were flawed, filed late and they also did not include actual certification of passive status. Now, it is becoming more clear why Musk did not officially declare passive status, as if his intense passion about how Twitter should be run, his recent outcry about free speech, and his frustration that right-wing zealots have been banned didn’t make that clear enough.

“They know he can buy the whole company,” Ives said. “It’s rare that someone has $300 billion in cash or net worth. That’s why they did that. If they didn’t embrace it, he would just go and buy another 10 % and get more and more control.”

Musk has already shown how he can agitate for change at the company. He recently asked his 80 million-plus followers whether they wanted an edit feature on Twitter. In late March, he had asked whether or not Twitter adheres to free speech, leading right-wing users to clamor for Musk to reinstate the banned Donald Trump to the platform. Users responded with a resounding no to the free-speech question, and a yes to an edit feature.

Twitter’s new Chief Executive, Parag Agrawal, and co-founder Jack Dorsey played nice on Twitter itself, proclaiming they were happy to see Musk on board. Agrawal noted that the company has been talking to Musk for several weeks, though the seeming peace is likely a front.

“I don’t think Dorsey is popping the Champagne with Musk on the board, regardless of what he says,” Ives said, noting that Musk is taking advantage of a perfect storm at Twitter, where user growth is stagnant while other social-media platforms use their faster growth to attract more advertising revenue.

More from Therese: It’s time for Elon Musk to start telling the truth about autonomous driving

Now that he has a board seat, the question will be what he can do with it. Whether being on the Twitter board will insulate Musk at all from his separate Twitter-related portion of his fight with the Securities and Exchange Commission is another question. The SEC has already fined him and Tesla heavily for tweets and insisted he have someone with legal experience oversee his tweeting, a requirement he has openly ignored. Considering Musk filed his disclosure of the Twitter stake a week later than required by law and called that stake passive even as he was negotiating for a board seat, the SEC is unlikely to see this move as an end to that fight.

From Twitter’s end, however, this looks like a win. The stock is up nearly 30% in the day-plus since the stake was disclosed, Twitter is getting tons of free publicity from the Musk media machine that must obsessively chronicle every move the world’s richest man makes, and Musk is playing pretty nice so far.

The honeymoon may not last long, however. Just ask Martin Eberhard.

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