The tactics Elliott Management is using at Twitter to oust Jack Dorsey would never occur at Facebook, thanks to Mark Zuckerberg's foresight.
Facebook (NASDAQ:FB) is no stranger to negative headlines. From privacy abuses to misuse of the platform for nefarious ends, the social media giant regularly finds itself mired in controversy. While Twitter (NYSE:TWTR) has its own shortcomings too, they’re far less threatening than what Facebook has endured.
Twitter has additionally been more willing to address sticky issues. Last year, for instance, the microblogging platform announced it would be banning political ads.
To an extent, Facebook’s problems have been blamed on its leadership, with some company outsiders calling for the removal of Chairman and CEO Mark Zuckerberg. Shareholders have tried to neuter Zuckerberg’s power at the company to no avail too.
The same cannot be said of Twitter’s Jack Dorsey, who’s tenure as CEO is under threat. Over the weekend it was reported that Elliott Management, a $40 billion hedge fund, had acquired a stake in Twitter worth around $1 billion. Twitter’s current market cap is a little over $25 billion.
The biggest quarrel the hedge fund has with Dorsey is his divided attention. Dorsey heads both Twitter and Square. Elliott Management is betting that by forcing Dorsey out, Twitter’s shares will rise.
Going by the activist hedge fund’s recent successes, Dorsey should be worried. In January 2019 after acquiring a sizable stake in eBay, Elliott Management outlined value-creation strategies to boost the company’s share price. This forced then-CEO Devin Wenig to resign eight months later after refusing to accede to Elliott Management’s demands. eBay’s stock is still below $35 even after some of the value-creation strategies were effected.
Elliott Management also owns a significant stake in AT&T. Last year the activist hedge fund forced the telecommunications giant to agree to some of its demands rather than get into a protracted fight.
This was yet another demonstration of just how much influence Elliott Management has when it buys into a company and gets board seats. Dorsey should expect similar treatment. Over at Facebook though, Dorsey’s counterpart doesn’t have to worry about such problems.
It’s unlikely that Elliott Management or any other activist investor would attempt a similar move at Facebook despite there being existing value-creation opportunities as well. For one, the hedge fund would be largely outvoted owing to Facebook’s dual voting-class structure.
Based on Zuckerberg’s net worth of $73.6 billion, the Facebook co-founder owns less than 14% of the social media giant – assuming his entire wealth is held in Facebook which is not the case. Despite this, Zuckerberg’s voting power is massive – he holds the majority of the Class B shares which come with outsized voting power.
One Class B share possesses ten votes for every one vote of a Class A share. Combined with the voting rights of his co-founder Dustin Moskovitz’s Class B shares which he too controls, Zuckerberg commands a voting power of nearly 60%. He is invincible.
Unfortunately for Jack Dorsey, Twitter lacks such a structure, making him an easy target for activist investors.