Freedom to Tweet
There has been a great deal of drama surrounding the potential acquisition and privatization of Twitter by the richest man in the world, Elon Musk. This plan to take the social media platform private came as a surprise to many and has caused large swings in Twitter’s and Tesla’s stock price. This buyout actually started at the beginning of the year, when Musk began to accumulate a stake in Twitter starting January 31st. By March 14th, he had over a 5% stake, however this was not revealed to the public for another 10 days due to a delay in Mr. Musk’s required SEC filings. Later in the month, while his stake was still a secret from the public, Musk began to critique the Twitter platform on Twitter. He created polls like: “Free speech is essential to a functioning democracy. Do you believe Twitter rigorously adheres to this principle?” (Alder et al. 2022). The poll resulted in over 70% opposing Twitter and the social media platform’s inability to create a safe space that fosters free speech. Musk continued to attack Twitter’s ability to censor people’s thoughts and even created another poll questioning if a new platform all together was necessary. Musk attacked the board for their lack of shares and how it shows they do not have the interest of the shareholders. With Jack Dorsey’s departure, the board holds almost no shares of the company which Dorsey himself uses to explain why the company has been consistently dysfunctional. A disclosure from Vanguard reported a 10.3% stake, surpassing Musk as the largest stakeholder just a few days later (Alder et al. 2022). This shows Twitter has lacked serious leadership that has its stakeholders’ as well as their users’ interest in mind.
Soon word got out that the billionaire was the largest individual stakeholder in the popular social media company, with an accumulated stake of over 9% ownership, and resulted in a 27% spike in Twitter’s stock price. Mr. Musk continued to create polls about Twitter, on Twitter, including whether an edit button would be useful. Twitter’s CEO, Parag Agrawal, urges his users to answer these polls carefully as they will have significant consequences (Alder et al. 2022). That same day Musk agreed to join Twitter’s board of directors. However, the drama was just getting started, as just five days later, when Mr. Musk was supposed to officially join the board, the billionaire rejected the offer and filed for an amended disclosure with the SEC, allowing him to purchase as many shares as he wants (Alder et al. 2022). This is when talks of a buyout began, as Musk swerved joining the board rather deciding he would own the company instead. Twitter’s board, interested in keeping their jobs, did not initially support the idea and threatened a poison pill in order to dilute Musk’s shares and prohibit him from owning more than 15% of the company’s shares. Reports arose that Musk had obtained debt funding from Morgan Stanley and other financial institutions of $25.5 billion as well as $21 billion in his own equity funding (Feiner 2022). This made the idea of Musk making a fair offer in the form of a leveraged buyout much more plausible. By April 25th Twitter and Elon Musk had agreed on a deal to take the company private for $54.50 a share or $44 billion (Feiner 2022). This is a 40% premium on the value before the billionaire first disclosed a stack in the company (Ivanova 2022).
Elon Musk and Jack Dorsey are both visionaries who have made a fortune with their futuristic perspective, and they are also good friends. Musk and Dorsey have spoken much about the Twitter deal. Dorsey told Musk that he personally believes Twitter would be better as a private company, but declined when Musk offered him a spot on his new board once he has taken the company private (Feiner 2022). The current board’s turnaround in receptiveness of Mr. Musk’s acquisition is attributable to a few key reasons: (1) Twitter’s board considered the challenges of growing its business in its history, (2) the board determined that Musk’s offer was unlikely to be matched by any other potential buyer, and (3) the board devised that if this offer was rejected, Musk could still pursue an unsolicited takeover (Bursztynsky 2022). In this case, Twitter would have to put up a fight and ultimately be left with a deal that provides much less value in the case of going private.
Recently, another bump in the road has arisen in this theatrical buyout: fake Twitter accounts. In the SEC filing when the $44 billion deal was agreed upon, Twitter claimed they had less than 5% fake accounts in their users reported. However, there have been analyses that suggest Twitter could be made up of as much as 20% fake accounts. Musk stated that the deal cannot move forward until Twitter can prove they have less than 5% fake accounts and also would like to see how Twitter is getting their calculations for fraudulent accounts (Abbruzzese 2022). Musk attacked Twitter and their CEO on their own platform, but Twitter’s CEO, Parag Agrawal, refused to show proof of fake accounts at the time. In response, the richest man in the world simply replied with a poop emoji (Abbruzzese 2022).
Musk made it known that he feels lied to but has reiterated his intent to acquire the company. Many analysts believe the billionaire is using the fake accounts scandal as a way to lower the deal price or even back out of the deal completely. Earlier, Musk stated “a lower deal is not out of the question” (Bursztynsky 2022). Twitter’s stock price has fallen considerably since the initial offer of $44 billion due to these concerns regarding the deal’s future, with shares currently trading over 30% below the deal price. Another concern is Musk has lost too much money due to his Tesla stock being beaten down recently, and he is using these fake accounts as a scapegoat. An analyst at Wedbush, Dan Ives, believes there is more than a 60% chance that Musk walks away and pays the $1 billion break-up fee (Sozzi 2022). Wedbush trusts that Musk wants to continue with this buyout and eventually revolutionize the popular social media platform that he uses so often, but due to the massive downward pressure of Tesla’s stock and the economy since the deal, the firm believes Musk has gotten cold feet and is likely using the fake accounts as leverage for a lower price or as a way out altogether (Klender 2022). Musk might also feel stuck in the deal and that he paid too much of a premium since no other bidder has come forward offering the platform a more enticing deal. Ives stated: “And Musk knows that, which is why in a changing market and with Tesla losing ~$300 billion of market cap since the deal we view the $44 billion Twitter deal as having less than a 50% [chance] to get done as of today” (Klender 2022). With the stock market heading dangerously close to bear market territory in addition to the negative impact the talks with Twitter has had on Tesla’s stock, the electric car company’s stock price has plummeted more than 33% since Musk disclosed his major stake in Twitter. Musk’s main company and golden child, Tesla, seems to be taking a beating due to the billionaire’s financial adventure with Twitter. If Musk was to find a way out of the deal, Twitter’s stock could see even greater losses. An analyst at Jefferies, Brent Thill, believes in the absence of a deal, the floor for Twitter’s stock would be $22.50, which is roughly 40% lower than the current trading range. Thill believes Musk is simply trying to negotiate a lower price tag for Twitter shares in the buyout deal, which Thill estimated would be around $42 a share (Sozzi 2022). In line with almost everything the eccentric billionaire does, the Musk-Twitter buyout has proved to be an exciting one that still has a wide open ending.
Work Cited
Abbruzzese, Jason. “Musk Says Twitter Deal Halted until Company Proves Spam Account Numbers.” NBCNews.com, NBCUniversal News Group, 17 May 2022, https://www.nbcnews.com/tech/social-media/musk-twitter-deal-spam-fake-accounts-rcna29153.
Adler, Maxwell, et al. “A Timeline of Elon Musk's Takeover of Twitter.” NDTV.com, NDTV, 26 Apr. 2022, https://www.ndtv.com/world-news/a-timeline-of-elon-musks-takeover-of-twitter-2920133.
Bursztynsky, Jessica. “Musk Says Twitter Deal at Lower Price 'Not out of the Question'.” CNBC, CNBC, 17 May 2022, https://www.cnbc.com/2022/05/16/musk-reportedly-says-twitter-deal-at-lower-price-not-out-of-the-question.html.
Feiner, Lauren. “Twitter Accepts Elon Musk's Buyout Deal.” CNBC, CNBC, 25 Apr. 2022, https://www.cnbc.com/2022/04/25/twitter-accepts-elon-musks-buyout-deal.html.
Ivanova, Irina. “Elon Musk Angling for Cut-Rate Deal on Twitter, Analysts Say.” CBS News, CBS Interactive, 16 May 2022, https://www.cbsnews.com/news/elon-musk-twitter-hold-negotiation-discount-deal/.
Klender, Joey. “Twitter Deal Has 'Less than 50% Chance' to Go through after Tesla's Market Beating: Wedbush.” TESLARATI, 16 May 2022, https://www.teslarati.com/twitter-deal-has-less-than-50-chance-to-go-through-after-teslas-market-beating-wedbush/.
Sozzi, Brian. “If Elon Musk Scraps Twitter Deal, Here's What May Happen to the Stock.” Yahoo! Finance, Yahoo!, 17 May 2022, https://finance.yahoo.com/news/if-elon-musk-scraps-his-deal-for-twitter-heres-what-may-happen-to-the-stock-155556059.html.
