Elon Musk offers to buy Twitter
London / New York (CNN Business) Elon Musk has launched an offer to acquire Twitter (TWTR) and turn it into a private corporation, claiming that the firm needs to be “changed.”
According to a filing with the Securities and Exchange Commission, Musk has offered $54.20 per share for all of the Twitter shares he does not hold, valuing the firm at $41.4 billion. This is a 38% premium over the closing price on April 1, the last trading day before Musk announced that he had become Twitter’s largest shareholder, and an 18% premium over the closing price on Wednesday.
According to the SEC filing, Musk stated that the cash offer was his “best and last offer,” and that if it was rejected, he would have to reevaluate his status as a shareholder.
According to the complaint, Tesla CEO Elon Musk issued the business an offer letter on Wednesday night.
“I invested in Twitter because I believe it has the potential to be a global forum for free expression, and I believe free speech is a social requirement for a functioning democracy,” he said in a letter to the company. “However, after making my investment, I’ve realised that the firm, in its current form, can neither prosper nor serve this societal necessity. As a private firm, Twitter must be altered.”
The letter was written to Bret Taylor, the Twitter board’s chair, rather than CEO Parag Agrawal, who took up the position last October. Finally, it says: “Twitter has tremendous potential. It will be unlocked by me.”
Twitter confirmed receipt of the offer in a statement released on Thursday. The board of directors of the firm stated it would carefully consider the proposal “to decide the course of action that it feels is in the best interests of the company and all Twitter investors.” Twitter will not say when its board of directors would meet to discuss the offer.
On Thursday, shares of Twitter (TWTR) rose as much as 13% in premarket trading on the offer, but quickly recovered and were trading up around 5% at market open. At lunchtime, they were barely altered and had dropped into negative territory, indicating that investors were sceptical of the offer’s acceptance.
However, at the current price, it will be tough for Twitter to refuse Musk’s offer.
Ives stated, “Musk is putting the Twitter board’s backs against the wall.” “The premium is reaching a point where additional offers will be difficult to come by.”
But, in order to make a profit on such a high price, Twitter would have to do more to increase subscription income and minimise costs, according to Ives. Musk’s pledge to use the firm to encourage more free expression accomplishes little, if anything, to boost the company’s profitability, according to Ives.
“Musk’s decision to make this about free speech is the polar opposite of what any other corporate raider would do in terms of monetizing the company’s worth,” he continued. “At the same time, it’s historic and weird.”
Musk has 81.6 million Twitter followers, significantly more than any other CEO, and is a far more active tweeter than the few celebrities who have even more.
Musk has been a vocal opponent of Twitter in the past.
While some Twitter opponents worry that the social media network isn’t doing enough to combat the spread of disinformation, Musk is more concerned about measures to limit what users may tweet. He revealed last month that he was considering developing a new social media site.
Last month, Musk wrote, “Given that Twitter functions as the de facto public town square, failure to adhere to free speech norms significantly damages democracy.” “How should we proceed?”
Last week, Musk revealed that he had been purchasing Twitter shares since late January, spending $2.6 billion to amass 73.1 million shares, or a 9.1 percent ownership at the time, according to what the business had published at the time regarding the number of shares held by investors.
In February, Twitter unveiled a $2 billion share repurchase plan in an effort to boost its stock price. According to a disclosure report on Thursday, it has since repurchased 37 million shares, lowering the number of shares outstanding by that amount.
Elon Musk holding grew to 9.6 percent as a result of the reduction in total shares without his having to buy a single extra share. It also lowered the total value of the transaction.
Following Musk’s stock purchase disclosure, he accepted an offer of a position on the board of directors, with a 14.9 percent cap on his overall ownership in the firm.
But just a few days later, on Sunday, Agrawal revealed that Musk had opted not to join the board, thereby abolishing the ownership cap.
Musk’s investment in Twitter, as well as his first declaration that he would join its board of directors, alarmed several employees who didn’t want to be connected with the sometimes contentious leader.
Agrawal said in an email to workers on Thursday that a company-wide meeting would be held Thursday afternoon to “address today’s news and what’s next.”
“It’s critical that we all come together today as #OneTeam,” he stated in the meeting’s brief announcement. In the days after he refused the position on Twitter’s board, Musk has been uncharacteristically quiet about his ambitions. He has yet to detail the adjustments he wants implemented at the organisation.
“Right now, there are more questions than answers about what he should do next,” Ives said.
How Musk could be able to pay for his acquisition
Musk did not say how he plans to pay for the acquisition. He said that he has appointed Morgan Stanley (MS) as his financial advisor for the deal.
Although Elon Musk is the world’s richest man, the majority of his $274 billion fortune is invested in Tesla’s publicly traded stock and SpaceX’s privately held stock, and he has been hesitant to sell Tesla stock beyond what is required to pay taxes.
Tesla (TSLA) shares fell 3% in early Thursday trade, possibly due to concerns that Musk might sell shares to obtain cash, or that his recent interest in Twitter would divert him from his duties at Tesla.
Musk may not need to sell Tesla shares and instead use them as security to borrow the money he needs to acquire Twitter, according to Ives. Even after a little drop in premarket trade on Thursday, Musk’s Tesla shares are valued around $177 billion.
“Banks will be lined up to be part of the lending consortium to the world’s richest individual,” Ives said.
Even if Musk sold the number of Tesla shares required to purchase all of Twitter’s existing shares, he would still own a controlling position in the firm.
It’s unclear if he’d try to become the CEO of Twitter as well, given that he’s currently the CEO of Tesla and SpaceX. However, it’s unclear that Agrawal would stay on as CEO, a position he took on last November when Twitter co-founder Jack Dorsey abruptly stepped down.
“I don’t picture Elon Musk and Agarwal having candlelit dinners together,” Ives added.
Musk favours privately held businesses.
Musk is not a fan of his businesses being listed on the stock exchange. While other private space exploration businesses, such as Virgin Galactic (SPCE), have gone public, SpaceX has stayed private, despite reports that it is ready to go public. In August of 2018, he revealed — through Twitter — that he was considering taking Tesla private, stating that he believed it would be a good investment.
Musk was fined by the SEC for a tweet about taking Tesla private in which he claimed to have “financing secured” for the offer when he didn’t. He finally had to resign as Tesla’s chairman and agree to have his tweets containing critical information about the firm vetted by other Tesla officials.
Taking or keeping a corporation private decreases the amount of monitoring the watchdog body has over its activities.
At the time, his estimated price for Tesla, $420 per share, was perceived as emphasising April 20, the unofficial marijuana holiday. This time, “4.20” is included in Musk’s $54.20 per share offer for Twitter.