The Elon Musk Twitter saga continues. As the world’s richest man attempts to acquire the roughly $43 billion social media platform, the world is dialed in.
In case you missed it, Musk announced he had amassed a 9% stake in Twitter through a regulatory filing on April 4, 2022, making him the company’s largest shareholder. From the onset, he coyly played with the media and the platform itself by sharing tweets asking followers if they’d like to see an edit button in future releases, followed closely by another tweet showing a photo of himself on the infamous Joe Rogan podcast with the caption, “Twitter’s next board meeting is gonna be lit.”
It was just one day later when Twitter offered Musk a seat on its board. The offer, however, came with a stipulation that Musk not exceed more than 14% of Twitter’s remaining stock, to which he initially obliged. But, four days later Musk revealed he declined the board seat invitation, causing Twitter CEO, Parag Agrawal, to release a statement via Twitter acknowledging Musk’s fiduciary responsibility to the company and openness to his input.
Then it got interesting. On April 14, 2022, Musk offered to buy Twitter for $43 billion – equating to $54.20 per share – with the intention of moving the company private. In typical Musk fashion, he released a copy of the bid via Twitter with a single tweet that read, “I made an offer”. In the acquisition bid he says, “It’s a high price and your shareholders will love it.”
Impact on Twitter Shareholders
Just 3 days before the media hoopla surrounding the Elon Musk twitter debacle, stock prices were a modest $39.16. Following Musk’s regulatory filing and Twitter’s board seat offer stock prices rose to $50.98 on April 5, the highest since November 16, 2021. But, as the situation developed and Musk’s offer became public, stock fell by 1.7% to a price of $45.08, while Tesla shares also took a dive.
Preparing for a hostile takeover, Twitter announced they would employ a “poison pill” strategy, labeling it the “Rights Plan”, should Musk continue with his acquisition attempts. According to Investopedia, a poison pill allows existing shareholders the right to purchase additional shares at a discount, effectively diluting the ownership interest of a new, hostile party – or in this case, Elon Musk. Companies like JCPenney and Netflix have prevented hostile takeovers via the threat of the poison pill, but no company of Twitter’s magnitude has actively deployed this mechanism.
To show Musk, and the rest of the watching world, that their threats would materialize should he surpass more than a 15% stake, Twitter filed an 8-K with the Securities and Exchange Commission (SEC) on April 15, 2022. This form details how the company will deploy the poison pill defense, including a, “significant penalty upon any person or group that acquires 15% or more of the share of Common Stock without the approval of the Board”. Should Musk or any other shareholder not abide by the agreement, other shareholders are allowed to purchase additional shares at a discount.
Proving the Finances
After the Rights Plan announcement many questioned whether Musk could materialize the funds needed for a $43B acquisition. Although characterized as the world’s richest man, he reportedly has only $3B in cash or other liquid assets, as his wealth is tied up in other investments, like Tesla.
While Twitter held out from accepting his offer, Musk proved he had the funds to move forward. TechCrunch explained the financing fell into three buckets: Morgan Stanley and other financial institutions financing, $12.5 billion in margin loans, and an “equity commitment letter”.
Elon Musk Twitter Takeover
But before the internet could dig deep into the financing, Twitter accepted Musk’s initial $44 billion offer to take the company private. According to CNN, the agreement means current shareholders will receive $54.20 in cash for each of their shares – a 38% premium over the existing stock price. Twitter’s Board met the Sunday before accepting the deal and in a statement revealed the deal is, “the best path forward for Twitter’s stockholders.”
For Twitter shareholders, a payout is imminent as the company and new unofficial owner solidify the mega deal over the course of the next year. But as for Twitter users, no one quite knows what will happen next. Musk has been candid about the need for an edit button and freedom of speech, while ditching spammy advertisers and bots.
In a tweet released April 25, Musk shared an image of commentary saying, “I also want to make Twitter better than ever by enhancing the product with new features, making the algorithms open source to increase trust, defeating the spam bots, and authenticating all humans. Twitter has tremendous potential – I look forward to working with the company and the community of users to unlock it.”
If you are not a current shareholder of Twitter, you may have missed out on a potential payout from Musk himself. But, there are certainly other investment opportunities to consider. Connect with the Prudent Investors team for expert insight on investment management, financial planning, and portfolio evaluation.
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