It’s not often that a corporation receives a takeover offer worth 18 percent of its stock, only to see its stock drop as a result of the news.
That’s what happened to Twitter on Thursday after Tesla CEO Elon Musk made an offer to purchase the firm for $54.20 a share, or $43 billion. The stock fell 1.7 percent to $45.08, giving it a market capitalization of $34 billion.
In other words, investors do not believe the deal will be completed. On Thursday, Stifel analysts downgraded the stock to a sell, claiming the company is facing a “full blown Elon circus.”
Musk has legions of fans, and he’s famous in the tech industry for making Tesla and SpaceX into thriving and truly innovative enterprises at the same time. But, after years of bluster, hype, and unfulfilled promises, Wall Street is wary of Musk’s intentions and ability or inclination to follow through, particularly on major financial transactions.
Consider the phrase “money secured.” That was Musk’s August 2018 tweet, implying that he was willing to take Tesla private at a weed-price lover’s of $420 a share (in case that explains the $54.20 bid for Twitter). It was also the tweet that prompted the SEC to file a lawsuit, which resulted in a settlement mandating a “Twitter sitter” to pre-approve any of Musk’s tweets containing information about the firm that could affect the stock price.
Tesla was never taken private, instead becoming one of the best investment bets of the following three years. The stock has risen nearly 1,300 percent since the tweet on a split-adjusted basis.
Musk has grown extraordinarily wealthy as a result of his efforts, overtaking Amazon’s Jeff Bezos as the world’s richest person. He’s found plenty of time to be a frequent rabble-rouser on Twitter, where he currently has 81.7 million followers, while running his two main firms and running a few more on the side.
Musk’s favoured method of mass communication is Twitter, which he uses for anything from promoting crypto coins to blasting politicians. On the site, he also continues to make claims regarding Tesla’s technology. And, more recently, it’s been his go-to site to chastise Twitter for what he regards as the company’s disregard for free speech values and technological limits.
But what about buying the company? Analysts aren’t convinced.
“While we agree with Mr. Musk’s opinion that Twitter is an under-monetized platform,” wrote analysts at Mizuho Securities, who have a hold recommendation on the company, “we expect the Board and significant shareholders to refuse the offer owing to philosophical disagreements.” “The limited time that Mr. Musk has to focus on Twitter as he is CEO of numerous other businesses, including Tesla, SpaceX, and The Boring Company,” according to the analysts, is one major concern the board may have.
Then there’s the financial aspect. According to Forbes, Musk is worth $265 billion, but almost all of his wealth is related to his equity ownership of Tesla and SpaceX. In late 2021, he sold nearly $12 billion in Tesla stock, which is still a fraction of the $43 billion offer price for Twitter.
Musk had purchased 9.1 percent of Twitter’s outstanding shares for roughly $2.6 billion earlier this year, prior to the proposal. On April 4, the day after Musk’s initial disclosure of substantial ownership, the stock rocketed 27 percent.
Musk wrote to the Twitter board on Thursday, “My offer is my best and last offer, and if it is not accepted, I would need to reevaluate my position as a shareholder.”
Musk stated he hired Morgan Stanley as his financial advisor in a filing with the Securities and Exchange Commission, but he made no mention of cooperating with other financiers or firms to assist pay the tab. Musk later admitted on Thursday that he’s “not sure” if he’d be able to buy Twitter.
Musk was questioned if there was a “Plan B” if the plan was rejected at the TED2022 conference in Vancouver by TED’s Chris Anderson. “There is,” Musk replied, although he didn’t explain.
Anderson inquired as to whether Musk had “financing secured,” a reference to Musk’s infamous tweet about taking Tesla private.
Musk stated, “I have ample assets.” “If it’s possible, I can accomplish it.”
Whether Musk is serious about buying the social media firm or not, he has created a big distraction for the board, which now has to review the offer. On Thursday, the board convened to examine the deal, and CEO Parag Agrawal allegedly informed employees that Musk’s proposal was not holding the firm hostage.
Agrawal may have investors on his side, based on the stock price reaction. The bid, according to David Trainer, CEO of market research firm New Constructs, is a “desperate attempt for Musk to gain attention,” rather than an honest endeavor to add value.
Trainer remarked in an email on Thursday, “He is only offering to buy Twitter since Twitter is where Musk is most famous.” “Apart from his rock star reputation, Elon Musk provides little operational value to Twitter stockholders, which is insufficient to transform Twitter in the long run.” Musk’s idea was not holding his company hostage.