Phewww. It was quick!
Just over 11 days after Elon Musk offered to pay $54 a share for Twitter, the company’s board approved the deal on Monday, a surprise turnaround. Twitter initially seemed opposed to the idea – it adopted a poison pill, a defense against an unsolicited offer like Musk’s – but warmed to it last weekend after Musk explained how he could pay. Answer: Lots of debt (about $25 billion), equity (about $21 billion), all wrapped up in Musk’s Tesla stock. (There’s a lot of them, worth around $230 billion.) That’s a $44 billion price on Twitter, a 38% premium to where the stock was trading when Musk disclosed his participation for the first time.
So that’s it, Elon won? Can we expect to see a spaceship in the employee parking lot from any day? Truth be told, we’re a few orbits from the sun, but Musk is definitely on the right track to getting what he says he wants.
What are Musk’s next steps?
The deal between Twitter’s board and Musk doesn’t appear to include a “shopping period.” Some buyout offers have these provisions, a time when the board welcomes all competing offers. (It’s like when the sweet-voiced auctioneer starts with “I’ll go once, I’ll go…”) Go-shops vary in length, their terms dictated by what the buyer and the seller accept. (Usually around a month to six weeks.) Adding a go-shop is seen as favorable to investors, with the board doing its best to get them the highest price. But go-shops aren’t required by law in Delaware, where Twitter is incorporated, so it’s not totally odd that Twitter doesn’t have one. (Skipping it will add to the sentiment on Wall Street that even with help from JP Morgan and Goldman Sachs, Twitter has found little interest as it has bought itself over the past few weeks trying to avoid Musk.)
Musk will then make a $54.20 takeover bid to increase his stake in Twitter to at least 50% or more. A takeover bid involves asking shareholders to sell their shares to it. He owns 9.2%, some 73.5 million shares. To get over 50%, he needs an additional 319.5 million shares, which will cost $17.2 billion. Peasy easy. It has $46 billion in funding lined up.
As the board deliberated last weekend, Musk reportedly spent the weekend on the phone with big shareholders, wooing them. From there, it doesn’t require any rocket science: Musk or certain members of the Musk team undoubtedly added up the yeses from last weekend and know that Musk can pass majority control. There is the rather improbable scenario of a sudden revolt of the shareholders, preventing it from exceeding 50%. Again, quite unlikely. The board has given its approval and the deal has been endorsed by many analysts who follow Twitter.
The tender offer will remain open for 20 business days. “And then any shareholder who hasn’t responded to their offer will be scrubbed by the company,” says Brian Quinn, professor of corporate law at Boston College. “The company gives you a check for $54.20 for each share you still own.”
What could stop Musk?
Apart from an unexpected act of God, very little. US regulators don’t seem likely to object on anti-trust grounds, since Twitter doesn’t combine with, say, Snap or something.
What we can’t explain or really predict is an act of Elon. In all things Musk, there is a small but not zero chance that the unexpected thing that happens once in a lifetime will happen right now, immediately at this point in our lives. The man truly redefines convention and predictability. Wait a minute he’s on Twitter making penis jokes with Bill Gates. The next day, he buys Twitter, after winning the approval of a board of 11 highly skilled and well-paid directors, including Twitter co-founder and (twice) former CEO Jack Dorsey.
What are Musk’s plans for Twitter and Twitter Inc.?
The board expects the deal to close this year. For now, CEO Parag Agrawal remains to see this process complete. After that…it won’t be a surprise to see him go, perhaps less than a year after taking over Dorsey’s job last November. Musk hasn’t been quiet about his criticism of Agrawal and the current state of Twitter. If he wants to fire Agrawal, it will trigger a $38.7 million severance package, although it probably won’t come to that. More broadly, the company reportedly told employees there would be no layoffs “for the time being” at a general meeting on Monday.
Ahead, we’ll see if the spaceship executive can push Twitter towards something more like warp speed. (And if he even really wants to.) The company had become more ambitious over the past two years after an earlier entanglement with another initially undesirable investor. But Wall Street had come to have growing doubts about whether Twitter could achieve the ambitious goals that Dorsey had helped set before he left. This includes revenue growth of 50% from 2021 to $7.5 billion in 2023, a bold projection that won’t be helped by (1) a general slump in the advertising market right now on spending fears consumers, (2) the continued fallout from a change in Apple software that made mobile ads less valuable, and (3) the inherent distraction caused by a hostile takeover, even one concluding as quickly as this one. (It really moved quickly. For comparison, the Oracle-PeopleSoft saga spanned 18 months—18!—to get to the same point Musk and Twitter reached in less than three weeks.)
Musk has repeatedly said he would like the platform to better embrace free speech principles, reduce ads, open up its algorithm, add an editing tool, increase user verification and crack down on spambots. . He also at one point used a TED Talk interview to suggest he doesn’t care about the business side of Twitter at all. There is, of course, the whole other part of Twitter, the cultural cache from which it emanates – the part that for 16 years has made Twitter a draw for presidents and celebrities and an incurable sore spot for a celebrity. became president. This cultural part has always seemed very out of proportion to the commercial part, and such a situation is a flashing neon invitation to someone like Musk, who will think he can finally fix what Ev Williams, Dick Costolo and Jack Dorsey (twice) couldn’t, since, hey, it can’t be harder than propelling men into space on a semi-regular basis.
Here’s Musk sounding a lot like Musk in a press release announcing the deal, talking about the future and why he did the thing in the first place:
“Free speech is the foundation of a functioning democracy, and Twitter is the digital public square where issues vital to the future of humanity are debated,” Musk said. “Twitter has enormous potential – I look forward to working with the company and the user community to unlock it.”
One thing is certain. These changes will take Musk a lot more time (and patience) than it took to buy the site in the first place.