1: yes. you get cash for your shares. 2: the board is representative of the share holders, like your US Congress person. they have a fiduciary responsibility to give the share holders value. the only reasonable way they could blow up this deal is if twitter had an incredible roadmap with a very good path to matching the value or exceeding the value of Elon's offer. no such roadmap exists, apparently.

The board could very easily have blown up the deal, which is proceeding only because they've consented to it. The game plan is simple: they do nothing, Musk executes a tender offer (which has a good chance of failing, so there's an out), the board says "nice job, but we're holding out for more money, check in with us next year", Musk launches a proxy fight, but it goes nowhere because Twitter has a staggered board and so there's no chance of a change of control within the next 12 months, 11 months go by, and we look at the price of the stock; if it's up, Twitter's board has de facto won the argument; if it's down, Musk's bid is no longer economically rational. Repeat.

The most boring conclusion here (boringness on message boards usually being a strong proxy for accuracy) is that the board's initial reaction to Musk's offer was reflexive, the same way you'd push back on someone offering to buy your house based on a fixed premium from like Zillow, and that over the ensuing weeks they've managed to do the homework to evaluate the deal, and they've decided Musk is overpaying, so they're taking him up on it.

From everything I've read --- I'm not an expert and someone like 'JumpCrisscross could jump in and correct me --- is that the deal blowing up was essentially the default state, once the shareholder rights plan was put in place.

There’s an alternative explanation to why the board did what they did: Musk has played fast and loose with “I have the funding for this deal” and “I am correctly disclosing my share purchases” in the past. The poison pill was a way to get him to slow down and talk to the board and get his lawyers to sit down with their lawyers and make sure this wasn’t going to be another “I’m taking Tesla private” moment.

(not saying you’re wrong, both or neither of these may be true)

Sure, I'm not unbiased here and am framing this in the way least favorable to Musk --- that if a board is going to accept a first (=chuckle= no, "final") offer from a bidder, it's because the price is more than the board thinks the company is worth. But it's also true that they may have done that calculation quickly, and that really they were just making sure this wasn't an elaborate joke.

Part of my analysis is based on the rumor that Twitter completed a valuation over the weekend, and it wasn't super favorable. But I've got no reliable reporting that establishes that.

Either way, my real point is just that the board could easily have stopped this deal if they wanted to; in fact, they didn't even have to do anything to do stop it.

Musk probably had to overpay, otherwise they wouldn't want to sell it.

Of course. It is standard to pay a premium over the share price in this situation.

We're not talking about the share price, we're talking about the company's projected valuation.

The share price reflects the market's valuation of the company, and shareholders are not going to want to sell for a price less than the current share price plus a premium.

Maybe if the board had information that hadn't been published yet showing that the company's financials had completely tanked since the last earnings report it would be different, but other than that, Twitter's financials are obviously public, and even if the board used something like the DCF method and obtained a number much lower than the market cap, that has absolutely no bearing on whether they would accept a certain price from Musk.

So, no, it's really the share price that matters in this situation.

Also, even if you're purely talking about valuations, there are other common valuation methods like the comparable method that look at what similar companies have received based on their share price, so the idea that the board would decide to sell purely based on cashflow projections is not correct.

No, that's not true. The board's job is to determine how far off the share price is from what they believe the company is worth based on their own internal projections. The board is certainly not expected to take the spot price of Twitter common stock as the ground truth of the company's valuation.

I think that's what GP said/meant, when s/he wrote:

> Maybe if the board had information that hadn't been published yet [...]

Of course the board has information that hasn't been published yet. Every board does.

It sounds, then, like you're agreeing with the post you replied to, which seems to already include the caveat you brought up

Technically they could, but once fiduciary duty is considered, and also given recent drops and maybe less than spectacular q1 results which as I understand are to come soon, they probably decided they shouldn't, as this may expose them to torches and pitchforks from shareholders that are less ideologically driven than they are.

Yes, Musk's bid may be overpaying, but in that case board's duty is to grab the money - and that's probably why he is overpaying.

Sure, we're saying the same thing in that regard.

2. That doesn't answer my question. Actually, I'm not even sure how it attempted to.

I specifically mentioned the "market price". I don't really know how these US congress persons work, and you may as well imply that the idea that they "represent" you is as much bullshit, as Musk-assigned board member represent real shareholders (and I have no problem with this implication), but there surely must be difference (and it isn't even the fact that you supposedly voted for them): unlike congress people, who can decide whatever they decide in the USA congress, the board cannot decide the market price. At least, usually. Every shareholder wants market price to be higher, and the board members are supposed to try to achieve that, but they cannot appoint the price, they simply have no such power. By definition, it's the market who decides that. Otherwise, it isn't clear, what the "not so low that the government gets involved" is even supposed to be. I fully admit that I don't understand how this works, so this may sound silly, but it would seem fair to me that since the moment company became public, nobody ever can undo that, because microscopic pieces of that company legally belong to some random people now, and they can ask whatever price they want for their share. If anybody makes them sell at any price that's less than what they want — it's a robbery.

Now, I can kind of imagine the way this could be worked around. E.g., there must be some way to liquidate the company, and hence there must be way to execute the merger regardless of what shareholder minority thinks of that. Each company gets supposedly "fair" valuation before the merge and old shareholders get specific amount of "new" shares in exchange to their old shares, which is kinda like getting the cash, so here we go. I mean, I still cannot explain myself, how this can be considered fair and legal, but I suppose there is an explanation. But even this way, the natural way to do that seems to use today's market price. So even if 51% belongs to 1 person and nobody else can decide anything (so, he basically IS the board already), how can this person offer shareholders anything else than the market price for what belongs to them? This doesn't make any sense to me. It sounds like a robbery, plain and simple.

There are stipulations that come with buying shares. In fact when you buy shares, they’re never even actually in your name. They’re like 3 steps removed from you via various holding companies that are basically a bunch of various crap.

One of the stipulations of being a shareholder is that you may be forced to sell your shares under certain circumstances. Nothing illegal about it, even if you don’t like it.

It's interesting to read how a takeover works from a US public markets perspective because the situation is completely different in the UK.

Takeovers of UK-listed companies are subject to the Takeover Code [0] which is administered by an independent body called the Takeover Panel. The Takeover Code is actually a surprisingly readable document which sets out all the rules that the bidder, the target and the shareholders must follow. A "mandatory" takeover in the UK is triggered when a shareholder goes over a 30% shareholding - they are then obliged to make an offer for the stock that they do not own at the highest price they have paid in the previous 12 months.

Shareholders cannot be forced to sell until the bidder has received acceptances of more than 90% of the shares to which the offer relates. The board of the target will offer shareholders an opinion on the takeover price - they can either recommend or reject the offer. Typically, when boards recommend an offer then shareholders will accept but there is certainly no obligation to.

Interestingly, the Takeover Panel used to have no legal enforcement powers (I'm not sure exactly what their status is these days). To ensure compliance with the rules there was a punishment called 'cold-shouldering' - basically if you breached the Takeover Code in an egregious way, the Takeover Panel could instruct market participants to stop dealing with the guilty party. This has only been used in very rare circumstances [1].

[0] https://www.thetakeoverpanel.org.uk/wp-content/uploads/2022/...

[1] https://www.thetakeoverpanel.org.uk/the-code/compliance/cold...

Depends on where you buy. Most folks buy from a broker and are holding the “street name”, which is an abstraction of the actual stock; however, it is possible to directly register shares with the DTC (depository trust company) and actually own them.

>If anybody makes them sell at any price that's less than what they want — it's a robbery.

No, this incorrect. Pending a shareholder vote, the board of a company can force you to accept an amount they determine to revoke the validity of your shares. If the value per share (which they decide) of a specific class of shares is not so low as to illicit concern from regulators then it's all above board.

It seems you don't understand the question. I understand that the board can decide value per share. Basically everyone in this thread said this at least once, which is unnecessary, since that's basically what was stated in the root post, and that's why I asked the question in the first place! The question is how this is supposed to be fair. Because, once again, if you make me to sell my property for anything less than I want to sell it for — yes, it totally does sound like a robbery. Again, kinda by definition (I paid money to own some entity; if you want to become the owner of what I own, you have to pay what I ask for it — this is basically how all trading works).

So, once more, my question is: what is the underlying legal idea, that makes this supposedly "fair deal"?

It seems you don’t understand the notion of conditional share ownership. These aren’t bearer bonds or cryptocurrency. Within the corporate structure that allowed you to be issued/sold these shares at the outset are stipulations that the board can liquidate your shares, under certain conditions. Evidently, those conditions have been met. An arbitrary definition of ‘fair’ doesn’t play into it.

I think the question is more to do with how we can have an economic system largely based on shares that can be rug-pulled from under a shareholder at any moment. How come governments don't legislate against it? How come anyone trusts shares enough to buy them?

At a guess I'd say the answers to the two questions are "they do legislate against some behaviours, but blocking hostile takeovers is worse than allowing them" and "the risk of that happening is built into the market price," but I don't actually know.

I think the problem is that a large number of people got used to various trading accounts like ETrade, Robin Hood, etc. and that seeing "N shares of ABC" on a web site means that they actually own the shares. But this is just an abstraction like someone said in another comment. I would encourage you to go and read any brokerage's terms of service that you agreed to when you signed up. Or if you actually managed to get a paper stock, read the fine print. I promise you it will be very interesting :-)

I personally am aware that shares are a very limited form of ownership and gave my personal answers for why I accept that, but the meta-level question that was raised by krick earlier still stands, which is how everyone else in the world sees it and goes "yep, that's totally fair, we don't need to fix this."

speaking for myself, "fair" means they obey the contract, which gives them that ability

there is also the option of not letting people buy or sell stocks at all, which would resolve the same issues the mandatory sell provisions resolve

A healthy control premium over the market price for a publicly traded stock is a bit far and away from being "rugpulled"

Yes, and I think krick was asking what happens when something closer to a rugpull happens.

The SEC says no, or there is a shareholder lawsuit.

Publicly traded securities aren't the Wild West, and the real world has built up comparatively effective dispute resolution tooling like "courts," elected and appointed "judges," "regulators," and "prosecutors."

Not to mention "case law" and "precedence"

>Within the corporate structure that allowed you to be issued/sold these shares at the outset are stipulations that the board can liquidate your shares, under certain conditions.

Those conditions and corporate structures should be regulated way more thoroughly, preventing legal fuckery such as this. Or share classes.

The board cannot, by itself, decide the value per share. The board can present its opinion that the deal is fair by approving it, and suggest that all shareholders take this course of action by subjecting the deal for shareholder vote. If the majority of shareholders agree by voting in favor, then the company will be sold, even if a significant minority disagrees, because the company is structured to act according to the will of the majority. That's what makes this a "fair deal".

It would be good to get confirmation on this as it contradicts statements upthread saying the board, in USA [though I'd expect it might be specific to a stock market], decided on behalf of the shareholders (to whom they have a duty).

Someone noted the UK position required shareholder assent, which sounds like what you're saying here.

If shareholders vote that sounds 'fair'. If the board decided and shareholders are obliged to go with it as that's how shares are [in some particular jurisdiction/market] then it being fair seems of no concern to that system (as a sibling content intimated).

If you look at (at least one) of the recent articles (try AP or reuters), the board mentioned that the deal is still subject to both shareholder and regulatory approval. That's where it is. Shareholders still have to vote, and the concept of "fairness" will be roughly equal to that of democratic elections. Sometimes the majority votes for a thing and the minority has to accept it in order to make progress.

The board basically voted to stop standing in the way of the deal and submit it to shareholders themselves since they confirmed that A) it seems like an ok deal and B) it's likely to not waste everyone's time.

It's a bit messy. Legally the board has to act in the best interest of all shareholders. In actual trials the judges tend to defer to the board's business judgment since they are intimately involved with the company's strategy and operations, unless the opposing shareholders can provide evidence of equal experience or understanding of business. In practice however, sitting on a company's board is a job, and the directors mostly do what the shareholders want to protect their career and professional image.

In this case, Reuters reported here https://www.reuters.com/technology/exclusive-twitter-set-acc... that the deal is subject to shareholders vote before it can be closed.

> what is the underlying legal idea, that makes this supposedly "fair deal"?

If you don't trust the board to do right by you, you are free to (and should) sell your shares.

> if you make me to sell my property ...

zwily explained above ( https://news.ycombinator.com/item?id=31162992 ) shares are not your property.

> US equities, corporate and municipal bonds can be issued in certificated form, though this practice has been largely replaced due to the costs and inefficiencies of keeping them. Rather holdings are kept as "immobilized" or "street name", with the beneficial owners keeping them in accounts at broker-dealers and banks, just as they do for currencies. DTCC uses a nominee firm, Cede & Co., in whose name a share certificate is held in the DTCC vaults. Each day DTCC reconciles with the relevant transfer agent the number of shares held in its accounts for its member banks and broker-dealers. In turn, other banks and broker-dealers hold accounts with DTCC member firms, creating a chain of ownership down to the beneficial owner.

https://en.wikipedia.org/wiki/Securities_market_participants...

The board cannot unilaterally decide the share price. The deal will only be finalized once, among other things, it's approved by shareholder vote. But that is largely a formality. The largest shareholders are going to be institutional and not ideological, and $54 is way higher than most (all?) estimations for Twitter's value. Incidentally the same reason that refusing this deal would have exposed the board to personal legal risk.

As for why it's fair - a share doesn't represent ownership of a company, it represents a voting share in an abstract entity. Normally these are pretty close to the same thing, but there are important distinctions - such as here. When Twitter goes private the abstract entity it used to be will cease to exist, along with all voting rights in such.

The shareholders appointed the board to act as their fiduciaries in respect to the governance of the company. They voted for them. Among the powers they granted them is the power to accept an offer to buy the company.

If you bought shares after the last annual shareholders' meeting, well... presumably you were happy enough with the current board members and the company bylaws to buy the shares in the first place. You did... do some diligence before you invested, right?

Imagine the reverse situation, where the board could not decide on the price everyone got per share but did let someone get a controlling stake. I could by 51% of a company for $10 per share and then use my controlling interest to pay myself a consulting fee that was the profits of the company. I could offer the rest of the shareholders $1 for their shares, knowing that I would never let them make any money off of them. When someone takes control you have to try and make sure that at the moment they take control every everyone is paid equally. It doesn't always work like that, but I hope this helps you understand the fairness of setting a price for the remaining shares when someone is in a position to take control of a company.

Buyers are often only interested in buying 100% of a company. If an all or none bid comes in, either the people who want to accept or the people who want to reject are going to be unhappy. When setting up a company you have to plan how to deal with this possibility in advance, without knowing the specifics of any offer. Most large public companies come to the conclusion that letting the majority decide is the fairest thing to do, and most shareholders know that's how it works when they are buying the shares.

Other people have tried to explain this in many ways, but I'll take a stab in a different direction.

When you purchase stock in a company, you agree to certain governance principles, rights and responsibilities. Those principles outline an individual shareholder's rights in the event of an acquisition.

Basically, you agree to those terms when you purchase the stock. If you don't like your rights, don't purchase the stock. If you own a stock and don't believe the governance structure has your best interests in mind, sell it.

> what is the underlying legal idea, that makes this supposedly "fair deal"?

Every public company has articles of association which define the rules determining things like this. By purchasing a share you agree to those articles of association. You can’t just say “hold up I didn’t agree to this”, because you did.

Tangential, but there was an interesting Lex Fridman podcast recently featuring Michael Saylor, on the advantages of bitcoin as a 'property' as opposed to a 'security' (such as shares).

I mention it here as I hadn't thought about this beforehand, and many examples were given in that podcast of the advantages of property (bitcoin, real estate, barrel of oil) compared to securities (shares). Less potential for conflict of interest, stronger concept of ownership and stability over time.

Thanks for asking, I had the same question and I thought it was some NYSE agreement I agreed to with Robinhood when I signed up.

It is not fair nor it is supposed to be. Stocks make as much sense as NFTs.

It looks like they made a good attempt to answer your question. They are saying that the board's fiduciary duty is what lets them be trusted by the government to sell the company. They are not saying the board decides what a decentralized market would pay each individual shareholder (the stock market does that), but that the board has an obligation to evaluate an offer against the likely future value of the company if it proceeds on its current path. Reading between the lines, the market is essentially a) the current stock price, b) the offer price, c) what the board/SEC/shareholder lawsuit judge thinks is a reasonable difference between A and B.

> It sounds like a robbery, plain and simple.

A lot of work and planning goes into the sale of a company, and there are a _lot_ of safeguards to ensure such a sale isn't done in a way intended to "rob" a large amount of shareholders[0]. You don't really "own" a stock in the regular sense of ownership simply because of the absolute mass of laws and regulations that surround both what you can do with your shares and how much they're worth.

0: https://www.lw.com/thoughtLeadership/the-latham-and-watkins-...

The board of directors has a fiduciary duty to represent the shareholders. That also includes the minority shareholders in your scenario. I think the comment above was just making a general statement of what could happen and in that hypothetical scenario, or even if you make it more extreme, say Elon and co acquire 51% of twitter for $50, and install new board with their majority and then the board decides to go private, selling the full company to Elon for $0.01 per share. Could they do this? Technically, I would say yes. But in reality, they would be sued by the 49% of shareholders and the SEC would probably launch an investigation (which is what OP meant by govt would get involved). On the open market, the board doesn't really have much control over the price, but when it comes to complete buy-outs or mergers, they can set a price and as long as most of the shareholders are happy, it is what it is. I'm sure with this Twitter buyout at $54.20, some people are holding shares that they bought at $60+ last year, and they'll be forced to liquidate those and get the payout, so they won't be too happy, but considering the current price of twitter and it's road map it may be a good price.

Wrt 2:

It's a bit complicated. The "market price" isn't really the target here, if you are talking about the price of the stock on stock exchanges. It's accepted that there is a thing called a "control premium" - basically it is more valuable to own >50% of a company because in addition to having an economic stake, you can now control the company. So when you are buying a company, you generally have to pay more (20%+) than the "market price" because you are also purchasing the "control premium".

So, there is a zero sum game going on here. That control premium is going to be divided up between the buyer and the seller based on the strength of their bargaining positions. For various reasons (poison pill included) board has a stronger negotiating position in extracting the "control premium" than do individual investors. If you weaken the current shareholder's bargaining position (by for example not allowing the board to negotiate price) you increase the share of the control premium going to the purchaser and decrease the share going to the current shareholders.

FWIW the poison pill is controversial. But from a "Law and Econ" perspective - this is the main justification.

Also - since I'm on a bit of a roll - there are definitely other stories for what is going on here.

One is that poison pills kind of soften the edges of capitalism a bit by allowing directors to decide if they want to the company to be sold or not. Call it crocodile tears by entrenched management, but there is something to be said for keeping a company off the market if the hostile bidder is going to just fire workers and scrap the company for parts. Fairly, this view is not consistent with "shareholder primacy" but it has to be said that not everyone sees the world that way.

Thanks, that's a bit more of an explanation to what I was wondering about than most of the other answers.

You're welcome. Corporate governance is a surprisingly controversial area for how boring it seems at first glance.

Here's a more in depth apologetic for the interested: https://theliptonarchive.org/1980s/

Corporate governance looks absolutely exciting at first glance, because so much of our lives are determined by it. (We spend a lot more time buying products than we do voting for politicians or filing taxes, same with spending money.)

I have first hand experience of an Australian ASX company being taken private:

In that Instance it was decided by a share holder vote after board negotiations.

Then you get a cheque for the money once it's agreed and gone through.

Happens very quickly with no fuss. All very efficient.

And that's that.

I wonder if the NASDAQ or similar in the US requires a share holder vote?

1/ Yes, and you also potentially incur taxable capitals gains at a time not of your choosing, which can suck.

I had some stock long term in Tiffany. Last year, Tiffany was bought by some outfit, and I received cash for the stock. I found out about it by looking at the statement and wondering where that cash came from :-/

I have some TWTR, and I expect the same thing will happen.

Similar thing happened to me when AMD acquired Xilinx. I got AMD stock and some cash. These types of transactions are usually automated, by an entity like DTCC I would guess.

Didn't XLNX turn into AMD directly at some fixed rate?

The exchange rate was not an integer. If you have to receive a fractional number of shares it’s rounded down and you get a cash payment for the rest.

Pretty much. Your tdameritrade account will just update and stick cash into your account and explain what they did in the cost basis tab.

BTW, this is a taxable event where you might not have expected it to otherwise.

Hadn’t thought of that, this is a great way to force some taxation on billionaires who hold indefinitely!

I wonder if the federal government would ever purchase companies like this…