Analysis: Why Musk’s Buffett-like playbook won’t work on Twitter

April 14 (Reuters) – “My offer is my best and last offer.”

Elon Musk’s $43 billion bid for Twitter (TWTR.N) takes a page out of Warren Buffett’s take-it-or-leave-it playbook. But investment bankers, investors and analysts said it needed a bombshell offer and more details about its funding for the strategy to work. They added that Musk’s track record of reversing positions also weighs against him.

Buffett is known for striking major deals through his conglomerate Berkshire Hathaway Inc (BRKa.N), such as the $11.6 billion deal to buy P&C reinsurer Alleghany Corp (YN) and its $37 billion acquisition. dollars from aerospace equipment manufacturer Precision Castparts Corp, by making a single offer and refusing to negotiate.

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These offers were considered fair by their acquisition targets and were backed by committed funding from Berkshire Hathaway. Musk’s offer, on the other hand, was deemed too weak by the market and too thin on financing details.

In 2018, Musk, who is chief executive and co-founder of luxury electric car maker Tesla Inc (TSLA.O), tweeted that there was “secured funding” for a $72 billion deal to to privatize Tesla, but did not move forward with an offer. He and Tesla each paid $20 million in civil fines, and Musk resigned as Tesla chairman to resolve US Securities and Exchange Commission allegations that he defrauded investors.

“Warren has demonstrated over 40 acquisitions in 60 years that when he says something, he does it. His word has enormous value. With Elon, I wouldn’t trust him, … there’s no reliability there- low,” said Lawrence Cunningham, a law professor at George Washington University who has written extensively about Buffett.

Musk and Buffett did not respond to requests for comment.

Musk’s cash offer of $54.20 per share, which values ​​the company at $43 billion, represents a 38% premium to Twitter’s April 1 close, the last trading day before its 9.1% stake in the social media platform is not made public. But it’s lower than where Twitter shares were trading as recently as November. For most of 2021, stocks have traded above $60.

Uninvolved investment bankers say the closest comparison would be PayPal Holdings Inc’s (PYPL.O) bid for Pinterest Inc (PINS.N), which the payments company withdrew last October after a negative response investors in its interest. The offer valued Pinterest at 17.4 times sales. By comparison, Musk’s offering values ​​Twitter at just 8.6 times sales.

Twitter shares traded at $45.08 on Thursday, down 1.75% since Musk unveiled his offer of $54.20 per share, reflecting investor skepticism that a deal could be struck.

“I don’t think Twitter’s board will really have a hard time saying no to this deal. It’s not an excessive premium and it’s not overvalued now,” said Chris Pultz, manager of portfolio for merger arbitrage at Kellner Capital.

A Twitter spokesperson did not respond to a request for comment.


Musk sold more than $15 billion of his Tesla stock last year, about 10% of his stake in the electric car maker, in part to settle a tax liability.

It’s unclear how much Musk now has available for an offer on Twitter, and it’s possible he could sell more Tesla shares or borrow against them. It did not provide any details about its funding in a regulatory filing on Thursday.

A leveraged buyout is typically 60% to 80% debt-financed, so Musk would likely need to come up with an equity check of at least $10 billion. It could get partners, such as private equity firms, to help finance its contribution.

Another issue is the banks’ willingness to provide debt for the deal given the uncertainty of how Twitter would be handled if owned by Musk. He criticized Twitter’s current management but did not reveal who the replacement would be. He also spoke out against Twitter’s reliance on advertising, despite it accounting for the majority of its revenue. Morgan Stanley (MS.N) is Musk’s lead bank working on the offer.

Musk said in the offer letter that he would reconsider his position as a shareholder if Twitter rejects his offer. Later Thursday, however, he hinted at the possibility of a hostile bid whereby he would bypass Twitter’s board.

He tweeted that Twitter shareholders should vote on the deal and posted a poll asking for Twitter users’ opinions on the matter. Typically, a company will only put a transaction to a shareholder vote once its board of directors has approved it.

If Musk is willing to make another offer despite calling his first offer “best and final”, analysts said his chances of closing a deal would improve significantly, given his resources as the man the most. richest in the world.

“The board may see a case to reject the first offer and explore options for a higher price,” Bank of America analyst Justin Post wrote Thursday.

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Reporting by Anirban Sen in Bengaluru, Krystal Hu and David French in New York Editing by Greg Roumeliotis and Leslie Adler

Our standards: The Thomson Reuters Trust Principles.

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