When Elon Musk informed Parag Agrawal of his decision not to join Twitter’s board of directors, there was immediate speculation that he made the decision because joining the board would limit his stock ownership to less than 15%. That would preclude him from launching a hostile takeover and taking full control of the company. At that time, I asked what seemed like a fairly basic question. Even though he’s the wealthiest man in the world at the moment, would Musk throw tens of billions of dollars into a company that has yet to demonstrate its ability to consistently turn any sort of profit? Now we have the answer and it didn’t take long at all. Musk has put forth a bid to buy all of the outstanding stock in Twitter, essentially taking the company private and putting it under the Elon Musk banner. And the price tag for that move – if it happens – will be more than $40 billion. Buckle up, campers. The ride may be about to get a little bumpy. (NBC News)
Elon Musk has offered to buy Twitter.
One of the world’s richest men delivered a letter to the company with a proposal to acquire all outstanding shares of Twitter for $54.20 each, according to a filing with the Securities and Exchange Commission published Thursday.
The letter, delivered on Wednesday, amounts to an offer to take Twitter private, a move that would give Musk greater control of the company. The offer values Twitter at more than $40 billion.
Musk wasn’t being subtle in the letter he sent to Twitter board chairman Bret Taylor and the SEC. He explained his reason for initially investing in the company, saying he believes in “its potential to be the platform for free speech around the globe, and I believe free speech is a societal imperative for a functioning democracy.” He then seemed to reveal his underlying problem with the company and what is needed to correct it. He informed them that he has realized that Twitter “will neither thrive nor serve this societal imperative in its current form.” He went on to say that Twitter needs to be “transformed as a private company.”
There was also an unsubtle threat at the end of his letter. He described his bid as his “best and final offer,” adding that if he didn’t gain control he would have to “reconsider” his investment as a shareholder.” This puts the board in a rather awkward position. If Musk bails out now and dumps ten percent of the company’s shares back on the market, the stock prices are going to immediately tank.
Conversely, his offer represents an instant profit of more than 50% for anyone who purchased shares before he entered the scene. Yes, the board members could refuse to sell “on principle” but they only control roughly 20% between them. For everyone else, be they private investors or market fund managers, that’s going to be a hard offer to turn down. How many people are going to be so morally outraged by the idea of Musk buying Twitter that they would turn their nose up at a 54% ROI overnight? I’m guessing it’s not a large number. And Musk doesn’t have to have 100% of the stock, although that’s what he’s offering to buy. All he really needs is 51% to be able to come in and start kicking butt, though it technically wouldn’t be privately held at that point.
The board members may find themselves in a position where they see the writing on the wall. If they assume that they’re going to lose control anyway, perhaps discretion will prove to be the better part of valor, and taking the money and running might begin to look appealing. We probably won’t know the answer yet for a bit. Twitter released an answer this morning confirming that they had received the offer, saying the board “will carefully review the proposal to determine the course of action that it believes is in the best interest of the Company and all Twitter stockholders.”
And what does he plan to do if this works? He said, “Twitter has extraordinary potential. I will unlock it.”
The other unfortunate possibility we have to consider is that this is all just a show for Elon Musk. Could he be counting on the aforementioned moral outrage of the board to refuse his offer, leading him to walk away and tanking their value? That would make this entire saga an exercise in futility and Twitter would remain as repressive as it is today. But Musk does love causing a stir and drawing attention to himself, so I don’t think we can rule that out entirely.