Twitter Inc. reached an expensive compromise with an activist investor on Monday to save Jack Dorsey’s part-time CEO job, but not for good.
Twitter TWTR, -2.98% reached an agreement with Elliott Management to buy back $2 billion of its shares, partially funded through a $1 billion investment from private equity firm Silver Lake, according to a Monday morning announcement. Twitter will also add two new board members, Egon Durban, co-CEO of Silver Lake, and Jesse Cohn, a partner at Elliott Management. Twitter said it is looking for a third independent director. Twitter will use its cash on hand to fund the remainder.
This compromise fell short of the initial intention by the hedge fund to remove Dorsey, a Twitter co-founder, who returned as CEO in 2015. Dorsey’s return raised questions among investors because he is also the CEO of Square Inc. SQ, -10.07%, the mobile payments company he also founded. He added fuel to the fire by tweeting from Africa in November that he intended to live on that continent for three to six months in mid-2020, though he since said he’s reconsidering that
Twitter seems to have drastically reshaped its approach to the capital markets in order to save Dorsey’s job: The company has never before repurchased a single share of its stock, according to FactSet research. In addition, the company is taking on an additional $1 billion in debt, But Twitter also said its board is creating a temporary board committee, to review the company’s leadership structure.
“While our CEO structure is unique, so is Jack and so is this company,” Twitter lead independent director Patrick Pichette, who is also the former chief financial officer of Google, said in the announcement. “To continue to ensure strong governance, we are pleased to create a temporary board committee that will build on our regular evaluation of Twitter’s leadership structure.”
Twitter said the committee will also evaluate the CEO succession plan with Dorsey and make recommendations consistent with corporate governance best practices with respect to eliminating its staggered board, and conclude its work and share the results publicly before the end of the year.
Twitter’s CEO may currently have the backing of the company’s board, and clearly the most recent quarter, which showed better-than-expected results and actual growth in its monetizeable daily active user numbers, helped. But going forward, two new directors who likely have different points of view, and the formation of the new committee, even if temporary, shows that Dorsey’s part-time job at Twitter is likely going to get a second look by a revamped board.
It appears that Twitter took on an additional $1 billion in debt — and sold that to Silver Lake for the cash. Twitter has not yet filed its 8K that further explains the deal. For now, Twitter has committed to spending that Silver Lake investment, plus another $1 billion to enrich investors on its first-ever stock buyback, all to save a part-time CEO who has struggled to convince investors that the Twitter platform is socially or financially healthy.
Now, in order to avoid a big public proxy fight, it made a deal with the activists, who may still try to persuade the rest of the board that Dorsey needs to go. It’s not clear what the point of this compromise was, except to buy Dorsey some additional time.