Elon Musk’s dramatic and public battle to own Twitter has reignited interest in the complex minutiae of hostile takeovers. Already this month, the Tesla CEO has revealed a 9.2 percent stake stake in the social media platform, declined a board seat meant to placate him, and attempted one of the more memorable corporate takeovers of the century. In response, Twitter has adopted a so-called “poison pill” plan to kill the bid, leading to a dramatic standoff.
What happens from here? To better understand the situation, we spoke to Asher Edelman, a 1980s corporate raider and one of the inspirations behind Gordon Gekko, the fictional character in Oliver Stone’s Wall Street who came to symbolize 1980s opulence and greed. As a young man bursting onto the takeover scene, Edelman was said to possess a rare combination of intense intellect, calculating ruthlessness, a legendarily “lavish life-style” and a “penchant for avant-garde art,” as the New York Times put it back then.
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Two months before the release of Wall Street, in 1987, journalist Ken Auletta described Edelman in the Washington Post as a complex figure who simultaneously cared for the homeless and told his colleagues that “greed is okay.”
Today, Edelman is toned-down and largely out of the raiding game, serving as the executive chair of a company that helps value art. He even backed Vermont Senator Bernie Sanders during the 2016 Democratic primary. But in the 1980s, Edelman was anything but shy about the nature of his work. At Columbia Business School, he famously taught a class about corporate raiding called “The Art of War,” in which he offered his students $100,000 (or $250,000 in today’s dollars) if they could identify a company he should take over—an idea the dean of the school later nixed, much to Edelman’s anger. Like Musk, he had his own run-ins with the SEC, including a $436,000 fine in 1991 for not properly disclosing a financial position.
He spoke to Motherboard about Musk’s attempted takeover, what he would do, how the raider scene has changed, and what could happen next.
Motherboard: I wanted to ask you about your thoughts on Elon Musk and Twitter, since you obviously know a lot about corporate—
Asher Edelman: I have no thoughts about Musk himself one way or another, because he hasn’t been a subject of major interest to me. But what he's done here is the norm. You go up close to 10 percent. Well, 5 percent, you're supposed to declare. But if you do it fast enough, you can go close to 10. Once you're over 10, you're subject to all kinds of different rules with the SEC and declarations, etc. [The SEC requires individuals or businesses to file reports when they own more than 5 percent of a company, which Musk recently had to do.]
So he's taken the first step, and then they [Twitter] put in the normal anti-Musk normal set of defenses, which was started by Marty—what was his name? Anyway, by a famous law firm in the 80s who was always on the other side of my deals and so on. [Twitter has adopted a so-called “poison pill,” or shareholder rights plan, which was invented by lawyer Martin Lipton to help his clients fend off corporate raiders like Edelman in the 1980s. The goal is to make it harder or less appealing for Musk to own the company.]
So how did we get around those defenses? Well, we got around those defenses in many, many ways. One of the ways was to co-opt people who were on the board, as to what kind of management we might be. Another way was to co-opt people on the board and get a minority group on the board. Once you had a minority group on the board, you're really able to move the others in the right direction, because they have responsibility to the company.
But you always had all this resistance until you got to the table. So the most important thing we did, of course, is we would litigate. Litigation was always a very good tool, because you could always pinpoint things that management had done that might not have been in the shareholders’ interest or might have been exaggerated or there might have been too many flights on the airplane with the family, etc, etc. So we would litigate, which often could break down the thing. We would let the board know we have an offer pending at a good price and that would often make them search for other players. And if they didn't find other players, they would see that their responsibility might be to the shareholders to take a higher price.
But the end game—which is not a very complex or expensive game—was to run a proxy war. Normally, they would fight and they would this and they would that. But, you know, Musk is a popular creature. Lots of people like him. And he could find that the shareholders would back him—greater than 50 percent. Takes time and some patience. And normally you either get bought out, not by the company, unless you're a creep, because greenmail is a creepy thing to do [“Greenmail” refers to a financial tactic popularized in the 1980s, in which an individual buys up enough shares of a company to threaten a hostile takeover. The company then pays a premium to get the shares back to avoid the takeover.] But you get bought out by a third party, or you end up with a company.
Those are things that he could do, whether he's patient enough for that we have to see.
When you said that he could potentially co-opt the board. What do you mean by that?
Well, I mean, he's put something on the table and the board has put up a resistance. The executives can't just do that. They had to go to their board and get the board to agree. And if you can reach into the board and have contacts with people on the board and tell them your case and what you're willing to pay, ultimately, they could reverse that position because they could decide it's good for the shareholders. Or they could decide it's dangerous for them not to respond to something that they can't replicate for the shareholders.
I know you taught a class called “Corporate Rating: The Art of War.”
“The Art of War.” It wasn’t called “Corporate Raiding,” but that’s OK. [From a 1987 edition of The New York Times: “His class, ‘Corporate Raiding: The Art of War,’ is intended to teach students the methods used to go after the stock of a corporation the raider thinks is undervalued.”]
Using this sort of ideas of that book, what would Sun Tzu—
The ideas of that book are very layered. It's a book that you want to read every month if you really want to understand all the ideas, because the ideas of the book are both really about strategy and ethics. When first reading it, you don't quite get that. It seems like a story. But it's not just a story. Strategically, Sun Tzu talks about all the methods of attack. Some of the methods of attack are actually attacks. Some of the methods of attack are to flush out the enemy from the castle because they don't have any more food or water. Some of the methods of attack—which is one that I really just described to you—are spies or cooperating members within a group. All of these things are in Sun Tzu’s Art of War. And then there's a whole series of things that in the end, you'll see that they have to do with the ethics of all of this in his mind. And they're kind of interesting, even when he cuts off the heads of the girls—the princesses.
Do Musk's tactics come across as premeditated and thought out to you or does he seem like he’s figuring it out as he goes along?
I don't know, because Musk always seems to be shooting from the hip. But then as things evolve, it seems that what he did do—if he doesn't end up in jail—makes some sense. And so I can't I can't determine that. I think if I were his advisor, he would get the company. And he would get it sooner than later.
What did you think of the price he offered? He offered?
I didn't even look at it. I'm really not in that business anymore.
I run a tech company.
I mean, I do some investing, but not that kind. I do—and you could mention this because it's nice business for me—I do do consulting on these matters. I haven't done one for a couple of years. But I now and then get called into something—I like it to be in the background, but I don't really care, my name could even get used—that sometimes helps people get companies.
Musk has portrayed his offer as a righteous attempt to protect free speech, rather than an economic decision primarily. That feels pretty different from what you would traditionally hear in these sorts of matters.
Yeah, well, I mean, you don’t spend $40 billion without expecting to get some kind of return on it. I don't know the answer, but I think he wants the company obviously. Or at least to control it. And I think he certainly can control it through a proxy, and he probably can end up buying it.
One thing that he did was he said that if the offer was not accepted, he would reconsider his position as a shareholder. Are you allowed to make threats like that? He seems to be saying he would tank the share price by pulling all this stock.
Yeah, of course you're allowed to do that.
For someone who's not an expert in this world, traditionally, what are you kind of looking at as a takeover target?
No, it’s not anyone. Everybody looks at something different. My world was centered around assets, especially hidden assets, especially real estate assets back in the 70s, and 80s. But it could have been any hard asset, I was not centered on the quality or the future or the growth of the businesses. I was centered on the asset values in the company, often that were not evident on the balance sheet but I could figure out. That was my game.
Other people played other games. Most people played for—they could make the business better. If you look at some of the people who've been doing it lately, they play to make the business better, but they never make it better. They just make their stock holdings better, they refinance the company, they get their money out, and they resell the company. Doesn't usually do very much good for anybody, except them maybe.
But my game was to take the shareholders along with me and have them make some money. Not that it always worked, but it worked often.
A lot of this current battle between Musk and Twitter is happening over Twitter, kind of weirdly, do you think technology is affecting how this sort of corporate warfare is engaged in?
Technology affects everything. I run a company that if you put a photo of a painting with a few details, we can tell you the fair market value in seconds. That changes the whole nature of the art market. It makes it basically a financial asset, where we do indexes and a whole bunch of different things. So technology always changes the nature of valuations at least. Does it change the nature of the war? I don't know. Maybe. I mean, Musk is pretty good at communicating. And technology allows you to communicate more easily. So from that point of view, I guess it does.
Are there any other ways that you could see that sort of takeover tactics have changed over time from when you were doing them yourself?
It's according to whom again, because if you look at Danny Loeb or Carl Icahn, who was really a good friend of mine—he's a nutcase. But he was a good friend of mine in the old days. [Icahn, worth an estimated $16.5 billion, and Loeb, worth $4.2 billion, are two of the country’s most successful corporate raiders, now more commonly referred to as activist investors].
If you look at those two guys—well, no, Carl’s calmed down. But if you look at Danny Loeb, there's a lot of blah, blah, and he makes a lot of money with his blah, blah. But there's a lot of blah, blah. And most of it is kind of tenuous in terms of its validity. But if you look at, let's say, [Henry] Kravis—he's retired now—but if you look at his operation, there's nothing very publicized about anything they're doing. [Kravis, worth $7.9 billion, co-founded the private equity firm KKR.] So it's different. It's according to the people.
Did you say blah, blah? Just to make sure I got that right.
I'll say it again: blah, blah.
At Twitter, people are reportedly panicked over the situation, do you think they should be?
Who’s panicked over the situation?
The employees inside Twitter.
Employees are always frightened—and rightfully so. Because typically, the acquirer reduces expenses. With Musk, that probably isn't the game. I think it's the farthest thing from his thoughts.
What do you mean by that?
I don't think he feels he has to reduce expenses at Twitter. He has in mind to make the platform something far bigger and better than it is. I don't think he has in mind to fire the secretary to the treasurer.
If he were to take it over there any sort of changes that you would expect from what you've seen from him?
Yeah, I think you'd have a very freewheeling disaster in terms of the information that reached the public. Because the public is very naive, and some of the politically crazies would have more access to them than they have now.
You kind of referenced this earlier, but Twitter's adopted a poison-pill defense, or a shareholder rights plan. How effective have such moves historically been?
They’re very effective in either getting a better price in the first offer or buying some time. I would say they're not very effective with a determined buyer, because there are too many routes that don't don't really involve the poison pill. And I think it's very funny that they left him another 5 percent to buy, because they'd like to see the share supported because they look better. [After discovering Musk had purchased 9.2 percent of the company, Twitter offered him a board seat under the agreement he would not purchase more than 15 percent of the company for the next two years. He ultimately rejected the offer and proceeded to attempt to buy the company.]
Explain that to me.
They said over 15 percent, it triggers. And he only owns 10 percent.
So they're saying maybe you could buy a couple more percentages.
Maybe you could make us look good for a while. It's pretty stupid. But Musk could be very naive. He has this amazing tech brain and marketing brain. But maybe he doesn't have this kind of brain. I don't know. But anyway, that's pretty amusing.
What do you think of their defense so far?
I haven't really followed it. But it looks to be very traditional. I imagine they hired Goldman Sachs and Marty Lipton.
I think they did. [Half-right: Twitter hired Goldman Sachs after Musk started going after the company, but I can’t find evidence they hired Lipton. Musk, however, did hire Lipton’s firm during his 2018 attempt to take Tesla private. Small world.]
Who I always beat all the time. Marty claimed to hate me his whole career. Not really, but we really were at war. Goldman, I brought more business to them defending than they could have ever had without me. And Marty, I'm not sure he's very active in the firm anymore. But his daughter is a friend of a friend of mine. And my friend mentioned that he knew me and she mentioned it to Marty Lipton. And Marty said, “He really was a smart guy.” It was very kind.
Musk has said that he thinks what's going to come might be “somewhat painful.” What would you expect as someone who's seen a lot of these things play out?
I don't think he could inflict anything very painful unless he knows something about the board and the management. There was one company where, you know, I'm not interested in the sexuality of people, and I never used it. But there was one company where a married chairman of the board—CEO, real right-wing guy, children—was using the company plane to fly young boys to the company boat where he spent the weekends with them. Now, I never even let him know that I knew that because it would not have served anything, but I knew exactly who he was. And in the end, I didn't buy the company. I sold it to Merrill Lynch, but I knew who he was and it's great. Part of what Sun Tzu really aspires to is to know everything about the opponents. And so maybe Musk knows something, but you don't use those things. You use them in the understanding of how the other people are going to operate.
You're not in the business anymore. Are you kind of happy that you're out of it?
I'm doing something that's really a lot of fun. I'm 82 years old. I wouldn't mind being in the business. I'm still scrappy. I still ski. I still work out. I still have an absolute full life. I work 12 hours a day. So I'm scrappy. I wouldn't mind doing one. Being a consultant is very difficult, because people pay you to tell them what they want to hear. And I don't do that.
But I’m a consultant sometimes. It was an awful lot of fun. It made me some money. And I mean, it'd be fun. I’m just doing something that is so exciting. I'm really so taken by it that I've even given up other income sources, just to dedicate my time to this company, so.