Photo Illustration: Sarah Grillo/Axios; Photo: James Brickwood/Fairfax Media via Getty Images

Activist investor Elliott Management has acquired nearly a 5% stake in Twitter, and believes the key to unlocking value is to replace Jack Dorsey as CEO. Bloomberg first reported the news, which Axios has since confirmed with multiple sources.

Why it matters: Elliott has become the top agitator in tech, and often gets what it wants. In this case, it's striking straight at the cult of the founder.

Elliott's complaint appears to be twofold:

  1. Dorsey only can devote part of his attention to Twitter, given that he also runs payments company Square (in which he has a larger financial interest). And this is only exacerbated by Dorsey's plans to spend much of 2020 in Africa, to better understand the continent's fintech revolution (i.e., something that is much more pertinent to Square than to Twitter).
  2. Twitter under Dorsey has experienced consistent executive turnover and has repeatedly dropped the product innovation ball (particularly in mothballing Vine, which was TikTok before TikTok).

The top counterargument is that Twitter's financial performance under Dorsey has steadily improved, even if not to levels of Elliott's liking.

  • Revenue topped $3 billion for the first time in 2019, and the company has been profitable for each of the past two years.
  • The stock price hasn't soared with some other tech bulls, but it's been consistently in the $30's after spending most of 2016 and 2017 in the teens.

This could become very personal, very fast.

  • Dorsey is an unusual manager, even beyond his double-sided business cards. He's particularly pensive and eager to delegate. As one former Twitter exec told me, "Jack becoming full-time doesn't help anything. ... He'd be the same if he were physically there 12 hours per day or for just a few hours each day."
  • From what I gather, Elliott might sort of agree. Even if Dorsey were to completely give up Square, or at least his Africa plans, Elliott likely would still want a full-blown Twitter CEO search where Dorsey would be a candidate, not a presumptive favorite

In terms of timing, it's unclear how long Elliott has been speaking with Twitter's board. But, for some context, its eBay campaign only lasted five weeks from beginning to end.

  • A forcing mechanism would be Twitter's annual shareholder meeting. There's no official date set yet, but last year's took place in late May.

The bottom line: We can't know what canning Dorsey would mean for Twitter without knowing his replacement.

  • But it could have ripple effects in Silicon Valley, where CEOs have been under increasing pressure to abandon dual-class stock structures. Dorsey isn't the typical founding CEO, given Twitter's tortured leadership history, but he would be held up as a poster child for eschewing traditional corporate governance.

Note: I was scheduled to interview Dorsey on stage at SXSW later this month, but Twitter yesterday canceled all conference appearances due to coronavirus.

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