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Twitter’s board should take Elon Musk’s offer 'with a bit more deference': Former SEC chair

Former SEC chairman Harvey Pitt joins Yahoo Finance Live to discuss Tesla CEO Elon Musk’s offer to buy Twitter, battles with the SEC, and potential regulatory hurdles.

Video Transcript

JULIE HYMAN: Well, Elon Musk's showdown with the board of Twitter continues. Shareholders and the world at large, it seems, waiting to see how that $43 billion offer is going to shake out and what kind of regulatory scrutiny it will get. Joining us now with his thoughts on the potential takeover is Kalorama Partners CEO and former SEC chairman, Harvey Pitt.

Harvey, it's good to see you this morning. So there has been a lot of chatter about the way this all went down. You know, Elon, in typical fashion, with a little joke in the 54.20 bid for this company. Do you think that this is going to come under regulatory scrutiny here? And what do you think the SEC could potentially focus on?

HARVEY PITT: I think there are a number of regulatory issues that have been raised by the way Mr. Musk has proceeded. First, he filed the wrong form, and then he filed the correct form late. That meant that a lot of the investors in the marketplace had no knowledge that he was an aggressive investor, instead of being a passive investor, as he had originally asserted. I think, in addition, the way he has posed this bid will cause regulatory scrutiny. And I think it's also fair to say that, by and large, this administration is probably not terribly enamored of Mr. Musk winding up acquiring Twitter. And that's going to be a problem he will face as well.

JULIE HYMAN: Harvey, I'm also curious. In his statement, he said, if he is not successful in taking over the company, he's probably not interested in being a shareholder anymore. Does that raise any red flags?

HARVEY PITT: It is a fair statement of what would happen, but his articulation of it makes it more of a threat. He's basically telling shareholders, if I can't acquire this company, I'm going to start selling off a lot of my stock. The difficulty he has is, if he starts selling his stock, he's going to drive the price of Twitter down. And that's going to hurt him personally. So I think that there are limits to what he actually can do, notwithstanding what he has said.

BRIAN SOZZI: Harvey, what grade would you give Twitter's board of directors so far?

HARVEY PITT: I give Twitter's board an F. I believe that under the circumstances, they needed to check out whether this was a real bid. And if it were a real bid, then they needed to do what's in the best interest of their shareholders. This is a price that hadn't been seen in quite some time.

And there are many who believe that the price overvalues the company. Now there are differences of views on that. But the fact of the matter is, the number is at least within a legitimate frame of reference. And the board's unwillingness to treat it seriously, it strikes me, gives it a very poor grade.

BRIAN SOZZI: Harvey, just staying on that, what should Twitter's board be doing now? So they adopted the poison pill. You have Jack Dorsey, who is on that board, over the weekend, criticize his own board that he's on. What should they be doing here?

HARVEY PITT: I think what they need to be doing is ascertaining first whether there are other bids available, attempting to make certain that they can provide value for their shareholders. And I think they need to treat the Musk bid more seriously and with a bit more deference. The fact that they haven't done that so far suggests that they've already made up their minds. And that's understandable. Mr. Musk's whole reason for buying into the company is because he has challenged the current board and has suggested that they've done a terrible job.

JULIE HYMAN: Sort of going beyond Twitter for a moment, I'm curious what other boards can take away as perhaps cautionary tales or lessons from this whole exercise.

HARVEY PITT: There is a standard of procedure that boards should follow when there are unexpected bids for the company. One of the first things the board has to do is create a special committee. It should be a committee of people who are independent, not of people who are management oriented. There needs to be a review of the suggestion, a retention of financial advisors, as occurred here, to try and determine whether there are better bids, and then in the best of faith to see whether there is a good faith basis for deciding whether to sell the company or decide whether there's more profitability available if they hold on to the company for a while longer.

BRIAN SOZZI: Harvey, you know, there's been this thought and brought up by Mark Cuban that Elon is just doing this to really continue to, I guess, stick it to the SEC. I mean, do you think that's the case? And then secondarily, if you were still running the SEC, how would you deal with someone like Elon Musk?

HARVEY PITT: Well, first, let me say, Mr. Musk hates the SEC, and that's his constitutional right. He does not have to like the SEC. But his tactic of thwarting them, attacking them, and so on, is just plain stupid. It doesn't get anyone anywhere. And it's childish, it's immature, and it's narcissistic. So I believe that he is his own worst enemy. He's obviously a man of great imagination. He's got great ideas and concepts, but he needs to stop acting like a child and start acting like an adult. And that, it seems to me, is the mistake he seems to be making continuously in his dealings with the SEC.

JULIE HYMAN: Well, and, you know, he does not often face consequences, I think it's safe to say, except, in this case, he has faced some consequences, right? There was a court case against him for his funding secured tweet regarding Tesla back in 2018. And it looks like a judge has agreed with that case, at least what we're hearing sort of preliminary ruling. What do you think could be-- I mean, if you sort of play this out, what could be the consequences in the current situation?

HARVEY PITT: Well, I think in the current situation, there appear to have been some significant regulatory violations. It seems that as I mentioned earlier, Musk filed the wrong form and then filed the correct form late. Those, it seems to me, are serious problems, and it is likely the SEC will take some action against that. I also believe that Mr. Musk's complaints about the court decree he entered into are basically after the fact rationalizations.

He could have litigated with the SEC. Or if he didn't want to spend the money to litigate, he could have simply demurred and let the SEC try to get relief. He agreed to relief that is unusual. That is the checking of his tweets before they become public. And now he's claiming that there was a breach of the First Amendment. That's ridiculous. He did not have to agree to the settlement with the SEC. He did that, but now he wants to get out from under the agreement he made. I would think there's a low probability that he'll be allowed to do that.

BRIAN SOZZI: All right, we'll leave it there. Kalorama Partners CEO and former SEC chair Harvey Pitt, always great to get some time with you. Have a good rest of the week.