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  • Elon Musk’s Twitter bid exposes ‘financially strange’ media ecosystem

Elon Musk’s Twitter bid exposes ‘financially strange’ media ecosystem

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Elon Musk’s proposed hostile takeover of Twitter will be a fascinating battle that will have consequences far beyond the stock market. It is exposing just how financially strange social media and conventional media have become. 

Over the last two years social media companies, especially Twitter, are doing something rarely seen in business life: telling many of their customers to go away. They are cancelling the accounts of users using the excuse that it is a violation of what they deem to be ‘community standards’. 

Compare this ‘content moderation’ and shadow banning with Twitter’s vision statement, which says the company aims to: ‘give everyone the power to create and share ideas and information instantly without barriers’ in order to improve ‘a free and global conversation.’ That is an ideal that has long since been thrown in the bin.

Removing customers might be excusable as a targeting strategy if Twitter actually made a profit. But it does not. It has only been in the black in two years of its existence and last year made a $US220 million loss. It has always been a bit of a mystery why a company that has made so many losses should be valued so highly. It is probably why in the months leading up to Musk’s bid, the share price was steadily falling; in March it was down by more than half from its peak a year ago. Musk’s valuation of the company at $US43 billion is over 60 per cent higher than the shares were trading in February.

The corporate moves so far have been fairly straightforward. The board instituted what is called a poison pill defence whereby, if Musk’s holding goes above 15 per cent, the other shareholders will be offered new, discounted shares to dilute the value of the predator’s holding. Poison pills are not unusual, but they are high risk. As Musk observed (on Twitter): ‘If the current Twitter board takes actions contrary to shareholder interests, they would be breaching their fiduciary duty. The liability they would thereby assume would be titanic in scale.’ 


'Musk may be arguably the world’s most successful capitalist but he is a mere billionaire. He is going up against the trillions controlled by the titans of managerial capitalism, with all their entrenched interests.'


Musk can get around the problem by joining forces with an investor consortium, whereby other friendly players purchase below the 15 per cent level and together they acquire a majority. He may also appeal to retail investors, such as the Apes Army, who defended AMC Entertainment and GameStop against attacks by hedge funds.

There is of course no guarantee that Musk will succeed and the market does not seem to think he will. At the time of writing the share price is trading below his bid price. But offers can come from anywhere and whatever transpires Twitter is likely to experience serious upheavals that could threaten its survival. Companies that make losses are never in a strong position.

Musk’s bid is drawing attention to the bizarre state of social media and conventional media. For one thing, how can a mature social media company that is destroying value be rated so highly? Amusingly, the broker Goldman Sachs, which has been brought in to argue that Musk has undervalued the company at $54.20 a share recently advised investors to sell at $30 a share (ironically, something pointed out on Twitter).

One answer seems to be that Twitter is so important politically, in its role as what Musk has called the global ‘town square’, investors are willing to turn a blind eye to its financial performance. Another possibility is that large institutional investors are being seduced by hype, which is not uncommon in the digital world. 

A third possibility is that the company is just big because it is big, a kind of investment circularity. The largest investor in the company is Vanguard whose investments (mostly exchange traded funds) are passive. Vanguard simply allocates money proportionately across a market, or sector. A fourth possibility is that, because of Twitter’s importance in shaping ‘the narrative’ (to use that hackneyed phrase), it gets surreptitious support from elements within government.

If Twitter makes little financial sense the legacy media makes even less. It is hostile to Musk’s move because of the fear it will change Twitter’s politics. Mainstream media depends on social media for its story distribution.

They have reason to be apprehensive because their audiences are tanking. Citizen Free Press, a modest aggregator site that does not produce its own content, and is mainly run by one person, gets more traffic than outlets like the Wall Street Journal, Politico, NBC News and CBS News. A finance news aggregator, Zero Hedge, gets more traffic than ABC News and the LA Times. The mainstream media has lost its authority and the audience is turning to other sources.

Musk says that he has long had a ‘pathological interest’ in the truth, probably a side effect of having Asperger’s syndrome. He expresses a fierce, and apparently sincere, belief in the need to protect free speech, although of course he will have other agendas.

It is thus shaping to be one of the most revealing corporate battles in US history. Musk may be the world’s richest man, worth about $US260 billion, but arraigned against him are even bigger financial players — the managers who control much of the world’s wealth and power. There are three such groups and they tend to move in concert. First is the fund managers who control $US100 trillion. These funds dominate the shareholdings of the global corporations, which are also mostly run by professional managers. The big corporations then exert control over government bureaucracies — also run by managers — using various mechanisms such as private-public partnerships, outsourcing or privatisation. 

It is a powerful management troika. Musk may be arguably the world’s most successful capitalist but he is a mere billionaire. He is going up against the trillions controlled by the titans of managerial capitalism, with all their entrenched interests. It is a David versus Goliath battle that will indicate a lot about who really runs the capitalist system.





David JamesDavid James is the managing editor of personalsuperinvestor.com.au. He has a PhD in English literature and is author of the musical comedy The Bard Bites Back, which is about Shakespeare's ghost.

Main image: Elon Musk touring the site of the Tesla Gigafactory in Germany. (Getty Images News)

Topic tags: David James, Elon Musk, Twitter, Media



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Existing comments

“Twitter is so important politically” is, in my view, the correct answer as to why the money-losing company is rated so highly. What possible interest is so valuable that money can’t buy, and which the Board of Twitter will risk massive legal actions to protect? Simply, censorship, which enables them to influence elections.
Remember that three weeks before the 2020 election, the New York Post published a bombshell story about Hunter Biden’s emails that exposed an extensive history of the Biden family's involvement in influence peddling deals in Ukraine, Russia and China. The deal with CEFC China Energy appeared to involve Joe Biden from the get-go while he was Vice-President, where he was promised a 10 percent stake.
Twitter and Facebook suppressed the New York Post report and would not even allow users to share the article. A Polling Company survey of Biden voters in seven swing states found that 17% would have changed their vote if they knew of the stories. That would have swung all the swing states to Trump meaning he would have trounced Biden.

Ross Howard | 20 April 2022  

The only democratic government in the English-speaking world which has the potential to be a counter-influence to Twitter is that of the US. China can ignore Twitter because its government isn’t democratic and because the suspicious interests which use Twitter can’t speak or write Mandarin, which serves as a natural moat for the Communist Party’s hegemony within China against the rest of the world. The same too with Russia. Other language groups don’t matter because they are not associated with prosperity plus a sense of aggression that is also coupled with nuclear strike capability. Arab oil is pretty much domesticated by the West and other non-English groups have no money or, by and large, a growling nuclear strike capability.

But, the US systems of government, created by utopians in the eighteenth century, consist of legislatures state and federal filled with virtual independents enabled to be so by backroom connections to outside interests (and forced to be mindful of those outside interests because of unusually short terms of the lower house) and an executive which can be paralysed by legislative gridlock or a supreme court which was given a civil bible to play around with.

There is much to be said for the Westminster system based on executive dominance of the legislature and a minimalist constitution which focusses on machinery matters and leaves the feelgood stuff of ‘rights’ to individual pieces of legislation because, at the end of the day, voters don’t vote for parliaments to talk about them but for executives to do things for them.

roy chen yee | 01 May 2022  

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