Mergers Aren’t Always Fair

The general rule in mergers and acquisitions is that if you want to buy a company you have to pay all the shareholders the same price. This is not an absolute rule. You can buy some shares of the company at varying market prices before you decide to buy the whole thing at a fixed price, as Elon Musk did with Twitter Inc.1 Shareholders of the company who are also executives can get paid more than regular shareholders, in the form of employment contracts or severance pay. Shareholders with special classes of shares that get more votes can get paid more for those votes. But for the most part you are not allowed to simply say, like, “we will pay 51% of shareholders $40 per share, and the other 49% $1 per share,” and then get the 51% of shareholders to approve the deal and stiff the 49%.2

But like I said this is not an absolute rule, and sometimes you will want to give a few noisy shareholders a little nudge to get a deal done. In Musk’s deal for Twitter, for instance, one shareholder — Saudi Prince Alwaleed bin Talal — complained that Musk’s bid of $54.20 per share did not “come close to the intrinsic value” of Twitter. (This was in April, when that was a plausible position.) Alwaleed’s Kingdom Holding Co. owned about 4.6% of Twitter, and you could imagine him voting against the deal and making it less likely to go through. Musk solved this problem by allowing Kingdom to roll its Twitter shares into the privately owned company, an offer that was extended to some other big Twitter shareholders — including Jack Dorsey — but not all of them. Big noisy shareholders who were either (1) friendly with Musk or (2) antagonistic to Musk in a way that might block the deal were offered the chance to keep their stock in Musk’s private Twitter. Ordinary retail shareholders were not: They just got to vote for or against the deal, and if enough of them voted for it then they’d all get cashed out at $54.20. They did, and they were, and given subsequent events none of them are really complaining.