In case you missed it last week, Elon Musk sent a letter to Twitter’s chairman and filed with the SEC to offer $43 billion in cash to buy the social media platform outright and take it private. As you recall, Musk disclosed a 9.2% stake in Twitter a couple of weeks ago. A stake he’s been building since January. He was offered a board seat and then he turned it down earlier last week, saying he did not have faith in the company’s management team to change Twitter’s strategy and commit to making it an open source platform that will uphold free speech and be open to anyone. Late Wednesday, he made the all-in-cash offer of $43 billion to buy Twitter outright, saying it was, “His best and final offer for the company.” The $43 billion valued each share at $54.20, an 18% premium to where shares of Twitter were trading earlier in the week. It was a 54% premium to where shares of Twitter were trading at the beginning of the year, when Musk started his buying spree and that $54.20 number kind of sounds eerily reminiscent of the $420 per share that Musk tweeted he wanted to take Tesla private for back in 2018.
Musk warned that if Twitter’s board did not accept his offer, he’d be forced to reconsider his position as a shareholder. In other words, he might sell his stake and walk away. Keep in mind, he’ll likely net a mighty gain if he does, but he’d be sticking his finger in the eye of all Twitter shareholders because dumping 9.2% stake of Twitter shares back under the market will create a mighty splash, potentially sinking the vulnerable stock to well below it was before Musk started gobbling up shares. But just in case Musk doesn’t run away and attempts a hostile takeover of the company by buying up more shares, Twitter’s board got defensive on Friday. It adopted a so-called “poison pill,” otherwise known as a limited duration shareholder rights plan that would kick in if an entity, person, or group acquires beneficial ownership of 15% or more of Twitter’s outstanding common stock in a transaction not approved by the board. Each right, according to Twitter’s filing with the SEC, will entitle its holder to purchase, at the then-current exercise price, additional shares of common stock having a then-current market value of twice the exercise price of the right. In other words, shareholders will be allowed to purchase shares of Twitter at a steep discount, which would dilute the value of Musk’s shares if he tries to acquire 15% or more of the company.
Meet Ron Lieber
Ron Lieber has been The New York Times‘ “Your Money” columnist since 2008. Mr. Lieber is also the author or co-author of five books, with his most recent being The Price You Pay for College: An Entirely New Roadmap for the Biggest Financial Decision Your Family Will Ever Make. Prior to joining The New York Times, he wrote for The Wall Street Journal, Fast Company, and Fortune.
What’s in This Episode?
Tis the season here in the United States for college acceptances and decisions, and while some may not think this is an investment decision, it actually is. The cost of a four-year state university easily tops $100,000 these days, which feels like a bargain compared to four-year private colleges, where the all-in price tag could easily hit $350,000. If you have a few kids, double, triple, or quadruple that. If you’re paying for it on your own or taking loans, the cost of college may be one of the biggest loans you’ll ever take, and it could also be one of the biggest investments you’ll ever make in yourself or your child.
Full disclosure: I’m going through this process right now with my 17-year-old daughter. We are fortunate, she has good schools who want her, and we’ve been able to save for this event. But for millions of families and teenagers, the price we pay for college can have profound implications on their financial health that can last for years. Ron Lieber has studied the cost of college deeper than most people have ever ventured to explore. He is the Your Money columnist for The New York Times. He’s got a few bestsellers on The New York Times list, including The Price You Pay for College. A tremendous book that I’m so glad we read as a family as we enter this experience. And Ron is our very special guest on the Express this week. Welcome, Ron.
“Thank you for having me. I don’t relish the spot that you’re in, but I imagine I will be deep in it in approximately 24 months when our sophomore hits that stage of life. How are you doing?”
“We are doing OK, and mostly because our daughter is so levelheaded and been so cool about it that it’s made it an easier ride for us, and a couple of the schools that she really wanted, she actually got. So, we’re in that conversation with many of them right now about, ‘How are we going to do this? How are we going to do this? How are we going to pay for it? Should we? What should we pay?’ So, all of those questions are coming up. But, and you say this and I’ve heard you say this before, college doesn’t make your kid, your kid really turns into the person that they’re going to be, and the college does help them, and the friends that they make along the way are so important to that. But I want to get into some of the key tenets of your book. And as you know, and you point out, college costs have gone up astronomically, Ron, in the past 20 years, but the value of a four-year education hasn’t necessarily. What’s behind the rising cost first, and then we’ll talk about value.”
“Well, yeah, I mean, I think we should talk about costs and we should talk about price. When we talk about costs, I think about the costs that the colleges have to pay to keep the lights on and to provide whatever experience that you think it is that you’re paying for. The price is a couple of things. The price could be the list price, which the colleges often refer to and you can search for under the phrase ‘cost of attendance.’ So, you know, ‘University of Wisconsin-Madison cost of attendance,’ right? And what you’ll get there is the list price, the rack rate for tuition and room and board and fees and everything that you might pay, even an estimate of travel costs. So, that’s the list price. But then there’s the net price, and there’s almost as many different net prices as there are prices for seats on an airplane. And that is a more complicated thing to predict and to figure.”
“Right. So, when you say in your book, there’s the retail price, or the list price, the sticker price that we all see, but that’s just the very beginning of the financial journey that families go on when they’re getting ready to send their kid to college and making this decision. What are the major steps as we start to unpack all of that on that journey?”
“For starters, there are two different…. really three different kinds of colleges that we’re talking about, if we exclude for-profits, and there’s two different ways to get a discount. You know, subcategories in each, right? But they’re public universities and colleges, which are subsidized by the state and are usually, but not always, much cheaper in your state than a private college would be. And then there’s private colleges and universities, which at the rack rate can be up to three times as much as whatever your flagship state university costs, maybe four and some of the cheaper states.”
“But there’s two ways you can get a discount rate. You can get a discount (it’s my word for financial aid, it’s really just a discount though) based on your ability to pay, or what the college or the federal government perceives as your ability to pay. That’s what happens when you fill out the FAFSA form or that CSS profile form where they ask you a bunch of personal questions about your income in your assets.”
“You can get a discount according to your financial situation, or you can get a discount according to so-called ‘merit aid,’ which is a big, complicated and messy, unpredictable thing where admissions officers, not financial aid officers, throw discounts your way on the basis of… however it is they’ve scored your meritoriousness and where you might rank in the class of admitted students, but also based on dozens of algorithmic measures in these computer programs that they rent out from consulting firms. And so, the process has to begin with an understanding of the system that you’re tossing yourself into. And then there’s a whole bunch of other questions you need to ask yourself before you begin to shop or at least before you make a decision.”
“Right. So, merit aid, that can be a presidential scholarship, that can be some name scholarship, or… there’s a variety of them out there. But a lot of folks, when they’re looking at sending their kid to college, or kids who are looking to get themselves into college, may not be aware of all that. But there is a long list, and there’s money out there to be found if you know where to look. How do you even begin to look for some of these merit-based scholarships or aid, as we call it?”
“I wish I could give people a predictive formula, but it’s kind of hard. Now, I should say there is one place to look where there is some decent information. It’s something called the Common Data Set, which is what all these schools use to consolidate hundreds of bits of really interesting statistical data so that they can throw it all at US News and the other places that rank the schools. And just about all of them post this in public, but they don’t make an issue of it. They don’t put it on the admissions office page because they know that if you look carefully at Section H2 and H2A, you will get a good sense of what kind of merit aid they offer on average and to what percentage of the class.”
“And once you know that, you know if your package is below average or above average and how much negotiating… oops, I said the word. You’re not negotiating… They don’t, they don’t want to see themselves and they don’t want you seeing them as used car dealers. You can appeal. You can’t negotiate. No negotiating. You can appeal. That’s the word. You can appeal if you get in and you get an offer late in the game, and you know that it’s a below average offer. And so, the Common Data Set, useful not just for this merit aid stuff, but also for all sorts of other statistical information that may tell you more than a little about some things that you want to know about the place.”
“And then, Ron, there are some schools, especially some private universities and colleges, that don’t offer merit aid at all. Why don’t they? And we’re talking about some of the more elite private institutions here in the Northeast, but there are some out on the West Coast and all over the country.”
“Yeah. So, the way to think about this as a sort of marketplace. You only offer merit aid if you have to, and there’s a lot of different reasons why you might have to. But when I was reporting The Price You Pay for College, I knew I couldn’t go everywhere and do everything. There were a couple of thousand undergraduate institutions, or whatever it is. I forget the number. I tried to think about who my audience was and what they cared about. And as much ink that gets spilled over Ivy League and roughly equivalent schools, people kind of knew enough about those places. Those schools are all incredibly wealthy, and they can meet the full financial need of anybody they admit.”
“What I was interested in was the place in the market, the spots in the marketplace, where parents who had the ability to pay full price, increasingly, were lacking the willingness to do so. Because if you’re a school and you’re on the other end of that, that’s the point at which you have to discount. There’s a terrific story that appeared… I believe it was the Washington Monthly, I think it was 2013. The headline to search for is, ‘Merit Aid Madness.’ Maybe you can put it in the show notes. Just a terrific story about how the merit aid dominos fell over time in Ohio, which is a really interesting case study where a small school that was really struggling just started throwing money around, and slowly but surely up the food chain, everybody had to respond competitively as the lower schools picked off students that used to go to the schools higher up and the schools that were higher up were like, ‘Well, we can either keep losing good students or we can get in the game and start throwing money around too.’ And, eventually, every private college and university in the state sort of fell in line and had to do it. And now Oberlin College, which is sort of at the top of the food chain in that state, gives $10,000 to everybody right off the bat. It’s sort of amazing that this is happened.”
“So, you have to think about it as a sort of marketplace. And just because schools are giving money to everybody doesn’t make it a bad school. School’s going to be bad for you, or it’s not going to be bad for you, in terms of its fit. It’s going to be bad for you in terms of value, or it’s not going to be bad for you in terms of value. Now, how to figure out whether that’s true is a question that doesn’t have as much to do with money as it does to do with figuring out why you’re going to college in the first place, which is not a rhetorical question.”
“Not at all. And I think it’s becoming even more important question over the last couple of years. The pandemic has definitely dislocated our relationship with the way we used to do things. Whether that’s, ‘I go, I get up every day, I take the train, I go to the office, I come home, I sit down, and I have dinner,’ and that’s it. Or ‘No, I’m not going to the office anymore,’ or ‘I don’t know if I want to invest $350,000 or $100,000 in a four-year college for myself, my kid, whatever,’ because the world has changed. What is the last couple of years done to the entire psyche and the entire dynamic of paying for college?”
“There are really three reasons to go to college, and it all kind of starts from there. You go to college for the learning, to have your mind grown and your mind blown by real grown ups with the experience rearranging the way people think in the classroom. So, you go to college for the learning, that’s number one. Number two, you go to college for the kinship, to find your people, the people who you never could have imagined having existed in the world, the people you couldn’t or just didn’t find in your hometown. And you go to college, you seek out those people, they change your life, they pick you up, and they carry you through life for decades and decades and decades. Or maybe it’s a mentor, not a peer, who can do that. And then you go to college for the credential, and maybe that’s a credential that vaults you a couple of places up the social class ladder into a place of relative economic security that maybe your parent or parents hadn’t managed to achieve through no fault of their own. Or maybe you’re looking for the credential that opens doors to rooms that you or your family and your status and your privilege never could have imagined getting you into in the first place without that usually pretty fancy or very specific credential.”
“So those are the reasons to go to college. So, the pandemic happens, and I’m thinking to myself, ‘Oh man, is this going to turn out to be right?’ But then by a couple of months in, I was like, ‘Oh, we’re getting a real world test of this. And September 2020 came around, and wouldn’t you know it? The learning, it was all gone in April or May, through no fault of the schools. They weren’t prepared to teach online, or most of them at least, some of them had been doing it for a long time. So, the learning had practically gone to zero. The kinship was almost entirely gone because people weren’t together anymore. And you weren’t going to office hours or seeing faculty on campus. So, the only thing left was this credential that you’d get this PDF of a degree over email and they’d send you the sheepskin, you know, via USPS.”
“And yet, everyone went flocking back to campus in September of 2020. The schools had the nerve, the gall, to charge full price in almost every instance for a deeply compromised experience that they knew would sicken the 19 year olds and absolutely positively kill people in the community when inevitably a whole bunch of people got the virus and spread it before there was a vaccine. And yet, huge numbers of people flocked back for that. So that, to me, was evidence that college is for so many kids, and in the roughly medium household income category and above, had become… not just a rite of passage, but almost a sort of entitlement. People couldn’t really figure out what else to do other than go back. And they missed the kinship, and they missed the learning so much that they were willing to go back and pay full price because what else were they going to do?”
“Now that itself is not a rhetorical question. But we don’t really have alternatives that people trust right now. So, whether and how those could come into existence is like a different 30 minute conversation. But I think my theory of the case turned out to be right. There are three reasons people go. If you take away two of them, people are going to be sad, and then they’re gonna back and keep paying for it.”
“Let’s get back to the brass tacks of actually paying for it. So, what are the questions that parents and prospective students should be asking the universities and colleges that have accepted them and they’re considering that offer? We’re in that window now where those kids, those seniors, have to make a decision. What are those big questions, there’s a few of them, that are so key that you think are the most important ones they should be asking in order to determine A) is the right place, which is somewhat of a feel, and B) is this going to be worth it?”
“I think it starts with those three things that we were talking about before. Are you going for the learning? Are you going for the kinship? Are you going for the credential? Maybe two of those are totally unimportant to you. Fine with me. No judgment here. I just want you asking the question. But if we’re thinking about the learning. What categories of inquiry come up under that? It might be your odds of getting into a Ph.D. program because you are so set on sucking up knowledge in a particular area that’s really important to you that you might want to keep studying it for another five years afterwards. So, ‘What happens to the anthropology majors at these schools? Do any of them apply to anthropology Ph.D. programs? Do they get in? Who’s got a pipeline to the best anthropology Ph.D. programs? How do I figure out what those are?’ These are questions you can ask, where you can write to anthropology professors as a 17 year old and ask. And if nobody responds to you, you’ve learned something very important.”
“So, what else do we want to know about learning? We want to know about the size of the school and the size of the classes. If you think there’s a chance that sitting in a lecture hall with 300 other students for the first eight or 12 or 16 of your classes of your college career might affect how you learn, then ask the question. What percentage of the time are you going to be in classes that big? You should certainly ask about the teachers. If you’re going to be taught by grad students half the time your first two years… they may be great, but you’re the guinea pig, and they’re not there to learn to teach. They’re there to write a bang up Ph.D. thesis and get themselves a tenure track job, when the odds of doing that are like one in 62 billion. So, you teenagers, you’re a nuisance to them more often than not. Grad students have gotten mad at me for saying stuff like this. But look, this is not meant to disparage them. I wish there were more tenure track jobs, and if I was them, I’d be concentrating on my career track and not on the 19 year olds.”
“So, you know, these are all things you have to ask. And then there’s a different set of questions for kinship, a different set of questions for credential, and then you’re off and running. I think the problem here, though, is that people don’t feel entitled to interrogate the system. And I would just ask people who are in the process of shopping and certainly people like you who are in the process of choosing, feel some sense of entitlement about more and better information.”
“Let’s get to the… once you are pretty certain that you want to go to a place and you’ve made your major decision, how do you pay for it once you’ve agreed to the price? And are there any steps or things that people should know that are sort of outside of what we normally are accustomed to when it comes to paying for it?”
“Well, I think the die is cast once you’ve picked a place and you’ve settled on a price, I think the thing that I would encourage people to do… and I’m in the middle of a lot of hand-holding right now among friends and just readers who have dared to ask, there’s a lot of action between April 1 and May 1, and increasingly there’s a lot of action after May 1, where schools start to realize that they’re kind of ahead of where they predicted in terms of their numbers or behind where they predicted in terms of their numbers. And as things get closer to May 1 and they’re worried, they may be more likely to say yes to your appeal. They might even be more likely to say yes on May 5, when they said no on April 10.”
“And so, if you’re in a situation where you’ve got some merit aid, it never hurts to (politely) go back to the school and say, ‘Hey, I just want to let you know…’ This is the student speaking, which I think it probably should be. Although there’s no real science on whether the appeal from the student yields a better result than appeal from parents… say, ‘Hey, I’m really thrilled with this. I loved your school, I’m grateful for the offer. My parents are pretty hard up right now. This is a big price to pay. I’ve got a sibling coming up the pike or another one who’s finishing right now,’ or whatever the truth of the matter is. If you’re an only kid, talk about the fact that your parents or parent hasn’t saved enough for retirement, which is almost certainly true… ‘And I just want to bring you up to date on the really cool stuff I’ve been doing since I filled out my application. I also want to let you know that [X] or [Y] school down the road who’s in your athletic conference and who you compete with for students,’ you don’t say that. But, ‘[X], [Y] comparable school has also offered me admission, and the net price over there is going to be $3,000 less. I am trying so hard to make this easier on my family. Is there any way you can help with a little bit more money?” Nobody is going to resent that appeal.
“And at any given school, depending on where they’re at… look, it’s impossible to predict the odds. It just depends on what’s going on at that school. But what I can tell you is that they expect to hear from students, and they always have room in the budget in the spring to address those appeals and help way more people than you might think.”
“So, this has been an absolutely fascinating book and so useful for my family as we’ve been on this journey together. So, glad you wrote it and perfect time for us to take advantage of it. Folks, we’re going to put a link to it in the show notes, so you can check it out as well. But, Ron, what was the thing that surprised you the most of your reporting and you’re writing of this book that just woke you up to the fact that things have really changed or changed to a degree that you hadn’t expected?”
“One of the things I wanted to do, just personally to test myself, but also to just get out of standard New York Times, L.A., San Francisco, New York, Washington territory that I traverse probably too much at the day job… I wanted to get to the middle of the country, and I wanted to go to places that I’d never been before and schools that lots of people who I know in my life in Brooklyn, New York, had never even heard of. And I just had a hunch that some of these places were doing unique things, and that all of them had really interesting people who had thought through these issues that were worth talking about.”
“And so, there were a few people who I’d been following on Twitter, or whose work I’d read, who were at this school or that school in the Midwest, largely. And so, I just showed up in Minnesota and Ohio and Illinois to talk to these people. And what I realized, personally, was that I need to stop worrying about my kids, that I needed to have way, way, way more hope about this process because there are so, so, so many schools where my daughters could go and thrive. And it doesn’t matter if they go where I went or where my wife went. They are going to be fine. They’re going to be fine. They’re going to be better than fine. And that made me feel happy.”
Speaker 1 [00:30:41] Amen. Amen to that. Folks, tremendous book, The Price You Pay for College. Ron Lieber, also the author of the Your Money column on The New York Times and a lot of other good books. Ron, I’m so glad you wrote this, I’m so glad we read it, and thanks so much for joining the Express.”
“Ah, it was a pleasure. Thank you.”
Term of the Week: Poison Pill
It’s terminology time. Time for us to get smart with the investing term we need to know this week. And this week’s term comes to us from Elon Musk and Twitter, of course. But we’re going to give the socks and the credit to Sam S., who hit us up on Instagram to make sure we selected poison pill this week. Well, according to Investopedia, the term poison pill refers to a defense strategy used by a target firm to prevent or discourage a potential hostile takeover by an acquiring company. Potential targets use this tactic in order to make them look less attractive to the potential acquirer. Poison pills allow existing shareholders the right to purchase additional shares at a discount, effectively diluting the ownership interest of a new hostile party. The name comes from the poison pill spies carried around in the past to avoid being questioned by their enemies in the event they were captured.
There are two types of poison pill strategies: the flip in and the flip over. Of the two types, the flip-in variety is more commonly followed. A flip-in poison pill strategy involves allowing the shareholders, except for the acquirer, to purchase additional shares at a discount. Though purchasing additional shares provide shareholders with instantaneous profits, the practice dilutes the value of the limited number of shares already purchased by the acquiring company. A flip-over a poison pill strategy allows stockholders of the target company to purchase the shares of the acquiring company at a deeply discounted price if the hostile takeover attempt is successful. For example, a target company shareholder may gain the right to buy the stock of its acquirer at a two-for-one rate, thereby diluting the equity in the acquiring company. The acquirer may avoid going ahead with such acquisitions if it perceives a dilution of value post-acquisition. Well, in 2012, Netflix popped a poison pill to ward off activist investor Carl Icahn. And in 2018, Papa John’s Pizza enacted a poison pill to prevent founder John Schnatter from taking over the company. And as we know, Twitter just popped this poison pill to keep Elon Musk from acquiring more than 15% of the company as he tries to take it private. Good suggestion, Sam, who goes by @nyc_beer_. Socks are coming to you for your next round at McSorley’s. A light and a dark for me, please.