Tuesday, May 17, 2022
Over at the University of Chicago's ProMarket site, Bernard Sharfman has posted: Will “Portfolio Primacy” Throw a Monkey Wrench in Elon Musk’s Plans to Acquire Twitter? In the piece, Sharfman argues that even if one assumes Musk's offer for Twitter maximizes the value of that firm, "investment advisers to index funds, such as BlackRock, Vanguard, and State Street (the Big Three)" may vote against the deal on the basis of portfolio primacy because:
[A]n investment adviser who manages a stock fund should be managing the fund based on an approach that attempts to maximize the financial value of the entire stock portfolio at any point in time, not just the value of any individual stock investment. This approach is referred to as “portfolio primacy.”… [L]et’s say that the investment adviser to the S&P 500 fund comes to the conclusion that a Musk takeover of Twitter will so distract Musk from his duties at Tesla that it will lead to a significant reduction in the market value of Telsa’s stock. Because the S&P 500 fund has so much more in terms of dollar holdings of Tesla than Twitter, this expected reduction in the market value of Tesla stock could easily outweigh whatever positive value the fund derives from Musk purchasing Twitter.