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IN THE LOOP ➰ ISSUE 005
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First things first: happy belated Earth Day. We hope you spent the day outside, feeling the breeze, perhaps protesting fossil fuel investments. Anything other than casually live tweeting your takeover of a prominent social media platform.  

Yep, this month we’re breaking down Elon Musk's big purchase.  

We promise we’re not secretly Musk groupies (but no shame to those who are!). Instead, we want to provide some answers to “How?” How was a billionaire car tycoon able to buy a company in a matter of weeks?

In this issue, we’ll untangle what went down and use it as a learning opportunity to chat about acquisitions, regulatory procedures, and what corporate schadenfreude means for everyday investors like ourselves. Plus, the next time a billionaire raids a company… at least you’ll know what’s up *nervous laugh*.

But first, some personal news. And what could it be?!

👀 Alpha has landed:

  • Troop’s web app is officially in closed testing mode! – We’re so excited to be up and running, providing space to organize demands for corporate accountability, like calling on Kroger to address wage inequality and pushing Apple to improve supply chain transparency. Signing up for our mailing list on our shiny ✨ NEW WEBSITE ✨ (which went live this week 😍) puts you on the waitlist, so invite your friends to subscribe too.

👥 Our team is growing

  • We hired a Product Designer – Welcome Westin Lohne to the Troop! Graduating from Carnegie Mellon University with a degree in Human Computer Interaction and Information Systems, Westin spent his earlier years as a Product Designer at Facebook before pivoting to independent journalism at The Philadelphia Inquirer. Westin is passionate about design that prioritizes equality and equity, and enables people to make real change in the world. We couldn't be more excited.

🏆 We won an award

  • We’re world changing, baby – Fast Company recognized Troop as an honoree for its World Changing Ideas Awards. Now in its sixth year, the 2022 World Changing Ideas Awards showcases projects for social good. Out of 2,997 entries from around the globe, Troop joins the list as an Honorable Mention in the Impact Investing category.

You heard the news: Elon Musk signed an agreement to buy his favorite website Twitter for around $44 billion. The deal will take months before it’s final, but in the meantime there’s lots for everyday investors to learn from how it went down.

😳 What actually just happened:

  • Elon paid a premium for a questionable asset – The deal closes a tumultuous chapter for Twitter after going public in 2013. The company became the center of a culture war, has only turned a profit twice in the last 10 years, and lost its co-founder, Jack Dorsey, after he “stepped down” in 2021. (Many believe Dorsey, who was previously fired as CEO, was lowkey ousted by the board due to the company’s concerning performance.) At the beginning of April, shares were trading at $39.31, nearly half of what they were nine months earlier. Musk’s deal values the company 38% higher than that at $54.20 per share.
     
  • No, he’s not doing it alone – Musk has committed roughly $21 billion of his own equity (It might even be less, reports Reuters). The other $23 billion is coming from a variety of loans provided by big banks, including Morgan Stanley, Bank of America, and Barclays. He was able to secure such huge loans so quickly in part by using Tesla stock as collateral, but the banks themselves will also be taking out loans of their own to fund their contribution.


📕 The Elon-Buys-Twitter Glossary
Musk’s moves brought several technical terms into mainstream news coverage that are worth knowing, like:

  • Schedule 13G – This is one of two forms that the SEC requires if an investor acquires at least 5% of a company. These filings are guardrails to alert other shareholders of significant deals or potentially drastic moves. Investors file 13Gs if they are investing passively without plans to influence how the company operates. They have 10 days to file after they reach the threshold; Musk, controversially and perhaps illegally, filed his 10 days late, allowing him to continue buying shares at prices lower than they might’ve been had his 5% stake been made public on time.

  • Schedule 13D – This is an alternative and more detailed form required when an investor acquires at least 5% of a company with the intention of exerting influence over company management. Twitter appointed Musk to its board of directors the morning after he filed his 13G, raising questions about whether he was investing passively (call it passive aggressive investing, if you will). Later in the day, Musk filed a 13D to remove all doubt.

  • Hostile Takeover – This refers to any attempt to acquire a company against the wishes of that company’s management. These are typically resolved through a proxy fight, by which the “hostile” party either solicits shareholder support against management, or proposes a tender offer, i.e. a bid to purchase every shareholders’ stock at a price higher than the stock’s value. Musk went with the latter approach.
Throwback to this hostile takeover feat. Kendall, Stewie, and Sandy. Iykyk.
  • Poison Pill – When Musk offered to buy Twitter outright, the company’s board adopted a shareholder rights plan, commonly known as a poison pill. It’s a tactic used to fend off hostile takeovers by allowing existing shareholders to buy more shares at a reduced price in an effort to dilute the challenger’s influence. This comes at the cost of lowering the value of the company, hence, the “poison” pill. In Twitter’s case, they agreed to offer shareholders additional shares at a discount if Musk’s stake topped 15% to discourage Musk from gaining more control. But in the end, the board agreed to sell.
We love our readers, so we broke out the play-by-play for you <3

🙇 Now What?

  • Elon’s talking big (what a surprise) – Musk has pledged to protect “free speech” on Twitter and make its algorithms open source. He’s also tweeted about turning the company’s headquarters into a homeless shelter. There’s speculation that Donald Trump’s ban will be lifted. Everyone has theories, but we’re partial to this one that, perhaps, Twitter already works exactly how Elon wants it to work.
     
  • But it’s not a done deal – Twitter shareholders will vote on the purchase, the SEC will vet it for things like antitrust violations, and it’s possible Musk’s financing falls through. There are other scenarios that could kill the deal too, but the most likely outcome is that it happens––in which case, several months from now, existing Twitter shareholders will cash out for $54.20 per share.
Reason #129 why Musk purchased Twitter

A few other quick bites from the Troop braintrust.

  • Earth Month might’ve come to a close, but Troop won’t stop calling on companies to step up on climate change. Here’s a thread we loved that reminds us that climate change not only bears environmental costs, but economic costs as well.
  • Bills banning members of Congress from trading stocks are building momentum on both sides of the aisle. Lots of legislators violate insider trading rules btw. You can see what politicians are trading with Capitol Trades’ essential tool. – Capitol Trades (∞, 🧐)

  • Conservatives are filing activist shareholder proposals that resemble progressive ESG measures at first glance, but attack progressive corporate policies on inclusion, climate change, and corporate political influence. See this Johnson & Johnson proposal against racial equity. More proof that proxy voting is taking center stage for contesting how society works. – Financial Times (~6 min, 🥊)

  • The SEC has proposed another rule that would require investors to disclose 5% stakes in companies sooner. On the one hand, shortening the reporting window discourages activist investment. On the other hand, this rule could mean that retail investors will be brought in the loop sooner, allowing them earlier access to essential stock information. – Reuters (~3 min, 🔁)

  • A leaked memo this week reveals the Supreme Court is poised to overturn Roe v. Wade. Activist investors have already been targeting companies like The Home Depot, Kroger, and Lowe’s in anticipation of this decision with pro-abortion-related proposals. Time will tell what comes next. – Roll Call (~5 min, 🏛)

  • Latly, celebrating the end of another nerve-racking tax season for retail investors everywhere!

Thanks again for reading. Don't forget to shower your mamas with 💐🎁💝LOVE🍾🎉💌 this weekend. And if you have time, you can also check out these articles we shared connecting shareholder activism to Mother's Day.

Keep the suggestions, thoughts, houseplant tips, and newsletter feedback coming at community@troop.com.

We’ll see you next month!

🦍The Troop Team 🦍

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