Twitter’s (TWTR) Time As Public Company Comes To Improbable End In Deal With Elon Musk
3:08 pm Tuesday, April 26th, 2022
When Elon Musk made an offer to acquire Twitter (TWTR) for $54.20/share about ten days ago, there was little confidence that the company would agree to a deal with the Tesla (TSLA) CEO. In fact, shares of TWTR closed marginally lower on April 14, settling 17% below Musk’s bid at $45.08. Today, however, that skepticism has turned into reality after TWTR confirmed an agreement to be acquired by an entity wholly owned by Musk, confirming an earlier report from The Wall Street Journal.
While shares of TWTR were exhibiting notable relative strength today on these developments, the stock was still trading about 6% below the offer price. This indicated that there was still a healthy amount of doubt that a deal would be hammered out, despite the optimistic reports. Beyond the reluctance of TWTR’s board to hand control to Musk over political/ideological reasons, some believe that the offer price also stood in the way of deal. Less than a year ago, TWTR was trading at over $70, making the bid seem a bit underwhelming. Furthermore, the offer price pencils out to a fairly low forward P/S of about 6x. Whether Musk would buckle on his promise that $54.20/share represented his “best and final offer” was uncertain, but it turns out that he held firm on that statement.
TWTR’s surprising about-face on negotiating with Musk comes just one week after implementing a “poison pill” intended to block him from building a larger stake. Also called a shareholder-rights plan, the action is meant to dilute the stake of the acquirer by prompting an option for other investors to purchase shares at a discount. In this case, shareholders would gain the right to buy TWTR shares at roughly a 50% discount if Musk’s holding increases to 15% or more of TWTR’s shares.
The obvious question, then, is what motivated TWTR to reconsider its hardline stance? There are two probable explanations that are related to each other.
TWTR is apparently under pressure from some shareholders to accept the offer after Musk secured financing to complete the acquisition. One such firm that’s reportedly backing Musk is Morgan Stanley (MS), one of the company’s largest shareholders. If a significant portion of TWTR’s shareholder base believes that the board is not working in their best interests, then holdings could be substantially trimmed or completely eliminated.
Likewise, Musk has threatened to sell his stake if TWTR doesn’t accept his offer, putting potential downward pressure on the stock.
The bottom line is that this drama has come to a close in a surprising fashion. Last week, it seemed quite improbable that TWTR would ever come to an agreement with Musk. It certainly will be fascinating to see how TWTR evolves under Musk’s stewardship, although TSLA shareholders may not be so enthusiastic about the idea as concerns about Musk’s focus on the EV maker are bound to intensify.
