Twitter could eventually go public after being bought by tycoon Elon Musk. This operation is usually done by weakened companies and can protect Twitter, but with no guarantee of success.
a frequent tactic
A company often makes the headlines when it goes public to raise funds or to allow its founders, key investors and employees to sell their shares.
But there are also regular exits of some companies from the stock market to allow them to recover, before eventually they can come back.
In 2013, Michael Dell withdrew the company that bears his name from the stock market, in the midst of a period of distaste for PCs, estimating that, with that, it would be “more flexible and enterprising”. Five years later, Dell returned to Wall Street, already recovered.
On the other hand, a not-so-successful story occurred with investor Warren Buffet, who, in 2013, joined the Brazilian company 3G Capital to withdraw Heinz ketchup from the stock market, which was later merged with Kraft. The company’s stock has lost 40% of its value compared to its start in 2015.
Equity and investment companies regularly buy publicly traded companies hoping to raise cash through drastic measures such as layoffs or a merger with another company in their portfolio.
In the case of Twitter, however, Musk’s intentions are unclear. The richest man in the world has mentioned several times the desire to defend freedom of expression, for example, by modifying some functionalities on the social network, but has not presented any economic strategy so far.
Upon exiting the stock market, a company is no longer subjected to the multiple pressures of shareholders and the general public, who tend to “impose many restrictions on management and prevent them from effectively allocating their capital”, comments William Lee, chief economist at the Milken Institute.
However, after delisting a company, new owners “are generally much more conscientious” and “much more demanding” when it comes to the return on their investments.
The difference, according to him, is that a company listed on the stock exchange must deal with shareholders who are sensitive to diversity as well as the environment or salary scale. An investment company, however, is mainly concerned with the operational and financial aspect.
Twitter must – among other things – repay the loans given to Musk to finance the operation, recalls Gregori Volokhine, portfolio manager at the company Meeschaert Financial Services. The group will not be able, at least in the short term, to abandon advertising, as Musk had suggested, he details.
More time and freedom
Under pressure from Wall Street, which often demands immediate results, companies “often have more difficulties moving forward” because they are forcibly not free to test new products, notes Volokhine.
On the other hand, a company that is not listed on the stock exchange has no reason to publish its quarterly results or respond to the demands of regulatory authorities.
As demonstrated with Tesla, SpaceX and other initiatives of his, Musk is not looking for short-term profitability.
Nor does it conform to the usual rules, points out William Lee. Faced with the pressure to be politically correct, respectful of the environment and of everyone’s sensitivity, including on Twitter, Musk “probably says to himself, ‘Screw all this, I’m going to take the company off the stock exchange and run it. as I believe it can be better'”.