On 13 April 2022, Elon Musk made a $43 billion all cash offer valuing Twitter at $54.20 per share to acquire and take Twitter private.
The offer was a 54% premium over the price when he started building his stake in January and 38% premium over the day before his investment was publicly announced. This price is also an 18% premium over the closing share price on 13 April 2022. However it is below the 52-week high of $73.34 and below the all time high of $77 recorded in February 2021.
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This offer, which is one of the many eventful incidents, came just weeks after Elon became Twitter’s largest individual shareholder with a 9.1% stake of the company. Now, with Twitter’s Board of Directors viewing the offer as an unwelcome and hostile acquisition, and seeking a White knight investor, it seems like the saga is just starting.
Timeline of events
- 31 Jan 22: Elon starts acquiring Twitter shares in open market
- 24 March 22: Elon submits his share declaration to the SEC as he accumulated more than 5%. This declaration was 10 days late and classified him as a passive investor.
- 4 April 22: Elon’s stake becomes public information and he is invited to join Twitter’s board.
- 5 April 22: Elon refiles his share declaration to classify himself as an active investor
- 9 April 22: Elon rejects the board seat as this required him to limit his stake in the company to 14.9%.
- 14 April 22: Elon makes offer to acquire the entire company
- 15 April 22: Buyout firm Thoma Bravo expresses interest in bidding for Twitter
- 15 April 22: Twitter’s Board implements poison pill defence
Elon Musk’s offer
The offer is a non-binding proposal to acquire all of the outstanding stock not owned by Elon for an all-cash consideration valuing the stock at $54.20 per share.
The Proposal is non-binding and would be conditioned upon, among other things, the following criteria:
- receipt of any required governmental approvals;
- confirmatory legal, business, regulatory, accounting and tax due diligence;
- the negotiation and execution of definitive agreements providing for the Proposed Transaction; and
- completion of anticipated financing.
Rationale for the offer
Elon believes that Twitter will neither thrive nor serve the free speech societal imperative it was meant for in its current form and the company needs to be transformed as a private company. He has stated that does not care about the economics of the deal as he strongly believes that free speech is extremely important for civilisation.
Outlook for Twitter’s shareholders
There can be no assurance that the acquisition will be successful as Elon can withdraw the proposal at any time as it is non-binding. Elon has also said that he is not sure if his bid to acquire Twitter will succeed, but that he has a “Plan B” if it doesn’t.
Major investors such as Saudi Prince, Alwaleed Bin Tahal, the Chairman of Kingdom Holding Company has also stated that he would reject this offer as it undervalues Twitter given its growth prospects.
Mark Cuban, who is an American billionaire investor has stated that the Big Techs are all scrambling to assess the possibility of acquiring Twitter, not only as a White Knight investor but as a strategic acquisition. Many of these Big Techs would need to ensure that they do not breach antitrust laws should they end up controlling Twitter. Should another company bid for Twitter, this may lead to a bidding war which will benefit existing shareholders.
Should the deal fall through without an acquirer, Twitter’s price may crash to levels before Elon’s stake was disclosed. Twitter’s Board of Directors may then be faced with lawsuits for breaching their fiduciary duties as not accepting the offer could be viewed as a breach of its duty of care. Conversely, if the accepted offer is viewed as low, The Board of Directors may face a similar lawsuit.
It also looks like there may not be a quick resolution and Twitter’s management will have their hands full managing both the daily operations of the company and Elon’s offer. In addition, due to the publicity, Twitter may not be in the best state to carry out its growth strategies and may see a negative financial performance for this current quarter.
Poison pill defence
The Twitter board has adopted a shareholder rights plan, or “poison pill”. The likely reason is to thwart the bid from Elon to acquire it. The rights expire on 14 April 23 and allow current shareholders to purchase additional shares.
Under the rights plan, the rights will become exercisable if someone acquires ownership of 15% or more of Twitter’s stock in a transaction not approved by the Board. In the event that the rights become exercisable due to the triggering ownership threshold being crossed, each right will entitle its holder (other than the person triggering the rights plan, whose rights will become void and will not be exercisable) to purchase additional shares, at an exercise price of half the current share price.
As at 15 April 22, Twitter has not released details of the number of rights entitled per share.
The board’s move may not be viewed positively by shareholders, given both the potential dilution of stock should shareholders not be willing to acquire the rights and the signal it sends of hostility towards being bought.
Outlook for Tesla’s shareholders
Elon has stated that he would like for existing shareholders to retain their stake as part of the acquisition. The limit in US for private companies would range between 500-2000 depending on whether the shareholders are accredited investor. This means that Elon main intention is for the company to be taken private and for him to have a majority and controlling stake but not the entire stake.
With the poison pill defence setup by Twitter, It is clear that Twitter does not want to allow Elon to gain a controlling stake. For Elon to have a successful bid, he must now double his efforts to provide his post acquisition plans to convince Twitter’s Board on why allowing him to be the controlling shareholder is in the best interest of every stakeholder.
Should Elon succeed in getting Twitter’s Board support for the take private bid, regardless of the actual stake he would end up acquiring, he would likely need to both sell some of his Tesla shares and seek financing using some shares as collateral. Both actions would put a downward pressure on Tesla’s shares.
Closing statement
The lacklustre trading and closing share price clearly reflect the low probability of the deal to succeed. Despite the pre-market strength, the stock opened for trading at about $48.36 before closing in the red at $45, about 20% below the offer price.
Existing shareholders of Twitter will have to monitor the events closely and take a view of the likelihood of a successful take private bid, either by Elon or by any other potential investors.
Shareholders will also need to be wary of the potential impact of the poison pill defence implemented by Twitter as it means that a hostile takeover is now unlikely and any investor intending to acquire more than a 15% stake would need the Board’s approval. Consequently, this may affect the valuation of the company and long term viability of the investment in the company.
Any further clarity by Elon on his post-acquisition plans may alleviate concerns by the various stakeholders and strengthen support for the deal.
