On Tuesday I laid out Elliott Management’s case against Jack Dorsey
— or at least, what we know about it so far. The activist investor has acquired a roughly 4 percent stake in Twitter, and has reportedly expressed concerns with Twitter’s underperforming stock, its part-time CEO, and Dorsey’s stated plans to decamp to Africa for an unspecified period of time this year.
When I tweeted about my intention to spend a few months in Africa this year, I made a mistake and should have provided more context about why.
Never let it be said that Dorsey lacks the capacity for understatement.
In any case, the CEO no longer plans to spend part of the year in Africa, as Kurt Wagner reported at Bloomberg
“I had been working on my plans where I’d work decentralized, as my team and I do when we travel, but in light of Covid-19 and everything else going on I need to re-evaluate,” he said. “Either way we’ll continue to pursue opportunities in Africa.”
For a part-time CEO to announce that, on second thought, he will continue to run the company from headquarters instead of a different continent is generally not cause for acclaim. But given the threat Dorsey now faces his leadership, it represented a meaningful concession.
Dorsey went on to make the case that, no matter how it may seem from the outside, his half-decade as CEO has been productive. “Five years ago we had to do a really hard reset and that takes time to build from,” he said
. “We had been a company that was trying to do too many things.”
There’s a sense in which this is true. When Dorsey returned as Twitter CEO in 2015, the company was dabbling with Vine, Periscope, the identity platform Digits
, and the developer tools Fabric
. These products had been acquired or built to help Twitter find its way to growth and profitability, which had eluded the company under former CEO Dick Costolo. But they had come at the expense of attention to the core platform, leading to Twitter’s notorious harassment problem
and other issues. And however fondly (and justly) we remember Vine, none became an outsized success.
Since Dorsey’s return, Twitter has mostly wound those projects down. And the company has reinvested in its core product, leading to a notably productive 2019
. But as we discussed earlier this week, those changes have led to only modest growth and profitability. Elliott appears ready to argue that Twitter could have, and should have, done better.
Notably, the activist investor has yet to release a public letter making its case against Dorsey’s leadership — typically the first step in an effort like this. I’m told that the move was not entirely unexpected — Twitter’s financial team has anticipated the likelihood of an activist investor making a move against the company for some time, a person familiar with the matter told me, and has staffed up in an effort to prepare for it.
Elliott Management is perhaps most notorious
for its 15-year battle with the government of Argentina, whose bonds were owned by the hedge fund. When Argentine president Cristina Kirchner attempted to restructure the debt, Elliott — unlike most of the bonds’ owners — refused to accept a large loss on its investment. It successfully sued in US courts, and in pursuit of Argentine assets, convinced a court in Ghana to detain an Argentine naval training vessel, then docked outside Accra with a crew of 220. After a change of its government, Argentina eventually settled
and Singer’s fund received $2.4 billion, almost four times its initial investment. Kirchner, meanwhile, has been indicted
How do you prepare for an investor that once seized a naval training vessel? More to the point, how does Twitter
— a legendarily mistake-prone company
— prepare for such an investor?
The cutthroat firm, led by Paul Singer, has bought $1 billion worth of stock in Twitter and has nominated four directors to its eight-person board.
If the current talks break down, those seats would most likely be used to oust Mr. Dorsey from Twitter, especially if Elliott gets backing from other investing giants (which it has, according to numerous sources) and from the markets (which reacted well to Elliott’s move by pushing Twitter shares upward from $32 to $36 this week, in a very down market reeling from the coronavirus threat).
Stories about Elliott often include the line that the hedge fund prefers to work constructively with companies and avoid prolonged dramas. And yet it’s hard to think of something that Twitter has historically been worse at than avoiding drama. If Dorsey’s remarks on stage today were indicative of the company’s defense against Elliott, Twitter’s case for the CEO to remain in power may be weaker than it thinks.
And the real drama may be about to begin.