There was much speculation that Elon Musk would make a hostile takeover bid for Twitter following his turning down an offer for a board seat at the company after he recently purchased 9.1% of their equity. It didn’t take it long for this to come to fruition when he announced 4/14 a bid to take the company private at a $41.4 billion valuation, which is 8.1x trailing revenue of $5.1 billion and 5.5x estimated 2023 revenue of $7.5 billion.
The $54.20/share bid is an 18.2% premium over the 4/13 closing price of $45.86, although the stock was up less than 1% in early trading suggesting that investors aren’t taking the offer seriously. The stock traded at more than $70/share less than a year ago so many believe the board will push Musk for a higher offer.
The bid by Musk comes just a day after a Twitter investor named Marc Bain Rasella filed suit in the U.S. District Court of New York, saying that Musk did not properly disclose his Twitter stake within the required time frame. Investors who buy more than a 5% stake in a public company are required to disclose this to the SEC within 10 days, which Musk did not.
In a Schedule 13D SEC filing on 4/13 Musk pointed out that his offer represents a 54% premium over the closing price of the common stock on January 28, 2022, the day before he began buying shares, as well as a 38% premium over the closing price of the common stock on April 1, 2022, the trading day before it was publicly announced that he had amassed a 9.1% stake. Morgan Stanley
However, he had some harsh words for the board, which called a 10:00 a.m. EST board meeting today to discuss the bid. Musk said “My offer is my best and final offer and if it is not accepted, I would need to consider my position as a shareholder.” This may cause some investors to believe that if the board rejects his bid, he could dump his massive position, driving the share price down. Later in the 13D it is disclosed that he said, “I am not playing the back-and-forth game.”
Musk has been an outspoken critic of many of Twitter’s policies, including censoring misinformation. This begs the question, with Donald Trump’s Twitter-competitor TRUTH Social off to a very weak start, will he give up on TRUTH Social if Musk will give him his twitter account back?
Another interesting aspect of the deal is that Musk believes the company should start charging users, and other media companies like Hulu have been very successful in offering a subscription model. In the case of Twitter, they could charge a significant amount of money to corporations who mostly use their twitter account to sell their products. Rolling out a paid service to consumers would be tricky but could be done, particularly for celebrities, politicians, and other high-usage accounts.
As CEO of both Tesla Motors and SpaceX, some investors in Twitter may believe that Elon Musk is biting off more than he can chew, thus the tepid share price. In addition, he said in the 13D filing that he “reserves the right to change plans at any time” based on a number of factors. However, he ended the 13D on a positive note, saying, “Twitter has extraordinary potential. I will unlock it.”
