Elon Musk has generated quite the buzz again after a new Securities and Exchange Commission (SEC) filing revealed the world’s richest man proposed purchasing Twitter for $54.20 per share, or approximately $41 billion, and taking the $36 billion company private. Will the hostile takeover begin, or will Musk’s latest corporate pursuit of the social media platform fail to materialize? Considering Musk’s exceptional business record, it may be hard to bet against the billionaire CEO of Tesla Motors and SpaceX.
A Plan B for the Blue Bird
Musk appeared at the TED2022 conference in Vancouver, British Columbia hours after unveiling the regulatory filing. He revealed that he would prefer to keep as many shareholders involved as permitted under his suggested structure. Musk noted that he can “technically afford,” to buy the company but added that “I don’t care about the economics at all.” With expectations that the board will reject his offer, the entrepreneur revealed to TED’s Chris Anderson that there is a “Plan B.”
He took the time to briefly outline his vision for the “de facto town square,” purporting that “it’s very important for there to be an inclusive arena for free speech.” Although he believes there needs to be some content moderation and compliance with the laws of the nations in which it operates, Musk still wants to see a more open, transparent, and accessible venue. He proposed “time outs” rather than permanent bans on the platform and removing “spam and scam bots.”
Evidently, Musk wants to do more than turn Twitter’s name into “titter,” introduce an edit button, and incorporate Dogecoin into the subscription service’s method of payments.
Will a Takeover Happen?
Wall Street will now be trying to determine whether the company will accept or reject Musk’s offer. In response to the SEC filing, the social network noted in a statement that the board “will carefully review the proposal to determine the course of action that it believes in the best interest of the Company and all Twitter stockholders.” Indeed, there are many factors presently involved and unfolding in this story. The first is that, according to CNBC host Jim Cramer, there is the issue of “personal liability” if the tech giant takes the $43 billion. “This is one of those where they are literally not doing their job, there’s no fiduciary responsibility if they just say, ‘you know what, we take it,’” Cramer told the business news network. “There are times when individual directors are opened up for a level of lack of fiduciary that I think crosses the line. This crosses the line.”
Musk is now also facing a lawsuit by a Twitter shareholder. The case alleges that Musk did not disclose his 9.2% stake in Twitter to other shareholders and the SEC by March 24. If stock ownership tops 5%, investors are legally required to share the information. Marc Bain Rasella, the plaintiff, argued that by delaying his disclosure, Musk kept the stock price down while he continued to buy shares, which might have hurt traders who sold the stock before Musk’s announcement.
This, experts say, would weigh on Musk’s takeover bid.
“As the plaintiff states in the pleadings for his class action, the issue is that while Elon Musk began to acquire shares of Twitter in January, by March 14, Musk had acquired more than a 5% ownership stake in Twitter,” said Aron Solomon, chief legal analyst for Esquire Digital, in a news release. “The problem is that Section 13(d) of the Exchange Act and SEC Rule 13d-requires Musk to file a Schedule 13 with the SEC within 10 days of passing the 5% ownership threshold in Twitter, or March 24, 2022.”
Put simply, according to Solomon, Musk is accused of gaming the system as he allegedly broke the law.
One prominent Saudi Arabian investor has rejected the bid. Musk’s proposed offer does not “come close to the intrinsic value of Twitter given its growth prospects,” tweeted Saudi Arabian investor Prince Alwaleed bin Talal. But Musk responded to this tweet by asking how much the Kingdom owns “directly and indirectly,” and what the country’s journalistic freedom of speech views are.
Another market analyst forecasts that the stock could crash at least 20% if the board says no to his offer. “If Twitter rejects Musk’s offer we see the possibility for another investor to support the stock should it sell off. We believe that, if there is a 20%+ sell off on a rejected bid, Twitter would definitely present value to a strategic investor. In our view, this could be a positive outcome given Twitter would likely prefer a consortium of investors rather than be controlled by a single large owner,” said Jefferies tech analyst Brent Thill, who reiterated his “Hold” position and $48 share price.
And then there is the issue of Tesla stock. The electric vehicle maker tumbled as much as 3.5% after it was confirmed Musk offered to buy Twitter. In an Apr. 14 research note, Wells Fargo analysts averred that Musk buying the social network would present distractions, which would be problematic for Tesla, particularly if he sells more shares to fund a Twitter acquisition. The bank stated:
“If the deal is successful, there are two concerns from a TSLA shareholder perspective,” the Wells Fargo analysts said. One, TSLA is currently in the early days of ramping two factories, Austin & Berlin, which will likely double its global capacity. Running Twitter would be a possible distraction for a CEO that already has a full plate. Two, the takeover financing terms are unclear. Elon’s most liquid assets would be his TSLA shares valued at $170B.
“Therefore, there is a risk if he decides to sell more TSLA shares to fund the takeover, which could put pressure on the stock.”
Soap Opera Drama in San Francisco
The Musk-Twitter story keeps unfolding. With his unpredictability on social media and the bearish sentiment on the company’s stock, the next few trading sessions could prove to be pivotal for all of the parties involved, including free speech in the digital age. Still, whatever happens, Musk has opened Pandora’s box, proving that wealthy individuals possessing an affinity for open dialogue do not need to manufacture new platforms when there are plenty of alternatives to utilize – and purchase. Stay tuned because this takeover is being live-tweeted.