Analysis: The Twitter Board Rule That Could Explain Why Elon Musk Isn't Joining

A week after his addition to the Twitter board became a major market story, Elon Musk is once again back in the spotlight.

What Happened: On Sunday night, Twitter Inc TWTR CEO Parag Agrawal announced the Tesla Inc TSLA CEO would not be joining the social media platform's board of directors. 

The announcement comes after it was revealed Musk had become the largest shareholder in Twitter with a 9.2% stake. Agrawal said last week Twitter had offered a position on its board to Musk and hoped to work with him.

With Musk no longer becoming a board member, investors should consider one potential scenario.

Related Link: The 7 Most Tweeted Topics By Elon Musk: How Do Tesla, SpaceX, Bitcoin And Dogecoin Rank

Why It’s Important: In the 8-K filing that announced Musk being appointed to Twitter’s board one important item was revealed.

Under the terms of the agreement of joining the Board of Directors, Musk could not become the owner of more than 14.9% of Twitter shares while serving on the Board or 90 days after.

Many have called for Musk to make significant changes to Twitter including bringing back banned accounts, adding support for Dogecoin DOGE/USD tipping and changing the company’s algorithms.

Musk meanwhile had put out polls and calls for his more than 81 million followers to share feedback and opinions on items like adding an edit button, opening up the Twitter headquarters to the homeless and even changing Twitter’s name to take out the "w."

Musk is now free to increase his holdings in Twitter stock above the 14.9% threshold. In essence, the decision not to join the board could be foreshadowing that a bigger move could be coming and a heated battle for control of the company could be ahead.

An updated 13D filing shows Musk may engage in discussions with the Twitter board on potential business combinations or strategic alternatives. That language suggests potential discussions for a buyout or merger for Twitter could be the long-term plan.

Musk’s stake in Twitter is listed as an active one and for “investment purposes.”

Twitter is expected to report quarterly earnings this month and will hold its annual meeting of shareholders on May 25. These events could offer more of an explanation of what Musk could have in store for the company or what the company plans to do to keep shareholders happy.

Musk has deleted several tweets from his Twitter profile that were related to polls and callouts about Twitter around the timing of the stake being revealed and the board nomination being announced.

If Twitter is a buyout candidate for Musk, one person has already laid out a potential price.

Julian Klymochko, CEO of Accelerate, suggested a 50% premium on Twitter shares is $69.420, which would hit on two popular meme numbers that Musk has often tweeted about or shared memes about.

Some will remember that Musk tweeted several years ago that he was taking Tesla private in a deal valuing shares at $420.

TWTR Price Action: Twitter shares were trading 0.82% higher at $46.59 midday Monday.