In August 2018, Elon Musk called Michael Dell for advice.
Mr. Musk, who was trying to take Tesla, his electric car company, private, quizzed Mr. Dell, who had done that very thing with his eponymous computer company in 2013, about the process and the best lawyers to use for the complicated transaction.
“I was really asking him about — did he find being private was good?” Mr. Musk recalled in a deposition about the Tesla effort. “Did he regret going private?”
Mr. Dell warned Mr. Musk that it was “a very difficult process” but that he was glad to have done it, according to court filings.
Now, Mr. Musk, who did not end up taking Tesla private, is doing so with Twitter. As part of his $44 billion acquisition of the social media service, which closed on Thursday, he is delisting the company’s stock and taking it out of the hands of public shareholders.
Making Twitter a private company gives Mr. Musk some advantages. Unlike publicly traded companies, privately held firms do not have to make quarterly public disclosures about their performance. They are also subject to less regulatory scrutiny and can be more tightly controlled by an owner. That means Mr. Musk can make over Twitter — including tweaking the platform’s content rules, its finances and its priorities — without having to consider the worries of the investing public.
“It’s hard to run a public company if you think you should be the one running it and you’re not open to other views from people, like stockholders,” said Brian J.M. Quinn, a professor at Boston College Law School. “By taking it private, you feel like you have a lot more flexibility.”
Here’s how Twitter is set to change as a private company under Mr. Musk.
How is Mr. Musk taking Twitter private?
As part of buying Twitter, Mr. Musk is merging the social media company with X Holdings, a corporate entity that he established in Delaware to handle the deal. X is buying out all of Twitter’s stock and will control the service, and Mr. Musk will control the holding company.
What happens to Twitter’s stock?
Twitter will be delisted from the New York Stock Exchange and its shares will no longer trade on public markets. In September, Twitter’s shareholders approved the company’s sale to Mr. Musk and agreed to sell their stock to him for $54.20 a share. Investors will be able to claim the cash value of their shares.
What happens to Twitter’s board of directors?
With the deal’s completion, Twitter’s board of directors will dissolve and its nine members will no longer preside over the company’s operations. Mr. Musk will most likely appoint a new board made up of friends and investors who helped fund the acquisition. The new board will be responsible for plotting Twitter’s trajectory as a private company.
“It will still be required by law to have a board of directors, and that would probably include Elon Musk and some of the other big equity investors in the company,” said Eric Talley, a professor at Columbia Law School. “I expect Mr. Musk will run it as a somewhat friendly dictatorship.”
What happens to Twitter’s top executives?
Mr. Musk has already started cleaning house, with several of Twitter’s top executives getting fired on Thursday.
The executives who were fired include Parag Agrawal, Twitter’s chief executive, who has clashed publicly and privately with Mr. Musk. When Mr. Musk complained this year that Twitter had an unchecked spam problem, Mr. Agrawal tweeted to rebut his claims. Mr. Musk responded with a poop emoji.
At another point, Mr. Agrawal texted Mr. Musk, telling the billionaire that his criticisms were harming Twitter, according to a court filing.
“This is a waste of time,” Mr. Musk retorted.
Other executives who were fired include Ned Segal, Twitter’s chief financial officer; Vijaya Gadde, the top legal and policy executive; and Sean Edgett, the general counsel.
Under the merger agreement, Mr. Agrawal was potentially set to receive a golden parachute worth about $60 million, with Mr. Segal to receive $46 million, while Ms. Gadde would receive about $20 million. It was not immediately clear whether Mr. Musk intended to make the payments.
What about Twitter’s employees?
Twitter has about 7,500 employees. Some of them have been jittery for months about the company’s sale to Mr. Musk. Many could face layoffs or job changes as their new owner takes over.
Their compensation is also set to change. Employees typically receive stock options in the company. But, with the delisting of Twitter’s stock, employees are set to be cashed out for shares they already have and to be paid with cash bonuses going forward, instead of the stock options they were scheduled to receive, according to the merger agreement. Some employees have worried that Mr. Musk may not honor the agreement.
“Most of these employees have been in a public company and are used to public option grants, which are liquid,” Mr. Quinn said. “They will have to come up with some other Silicon Valley-friendly method of keeping people around.”
What financial pressures will Twitter face as a private company?
By going private, Twitter will avoid some public scrutiny since it will no longer be required to make quarterly disclosures about the health of its business. This will give Mr. Musk some flexibility as he changes Twitter.
But he will face pressure from the banks that lent him $12.5 billion for the deal to begin repaying his debt. The cost of repaying those loans could run as high as $1 billion a year, financial analysts said.
“He has less public pressure, but he has a lot of private pressure from the banks to make the payments,” Mr. Quinn said of Mr. Musk. “Like almost every other private-equity take-private, he’s going to need a manager who is very focused on operations, being lean and being able to pay the bills on a day-to-day basis.”
Mr. Musk also took about $7.1 billion from equity investors to push the deal through. He may also face pressure from those investors, who might expect him to take Twitter public again at some point so that they can recoup their investment.
In some take-private deals, owners have opted to sell branches of their companies to pay their debts. Mr. Musk could choose to do the same at Twitter.
“It’s conceivable that some aspects of Twitter could potentially be carved off, sold off or spun off to raise money that could go toward paying the debt,” Mr. Talley said. “Twitter kind of is pared down to its core mission right now. They would have to get a little creative.”
