Despite Elon Musk wanting to terminate his $44B agreement to buy Twitter, I predict a likely outcome.
I became a Twitter shareholder for the sole purpose of following Elon Musk in his journey to acquire Twitter in order to potentially privatize and transform it into the vision he has for the social media platform. So #ElonTwitterShareholder!
I’m not usually a no due diligence kind of person, but I consider Twitter stock as a just for fun, risky biz type portfolio position to see what happens.
I think Elon’s quest for Twitter domination is even more meme-worthy than other things I’ve seen because this is an epic chess match between Elon and the PhDs that run Twitter.
While Gamestop represented an admirable uprising of the redditor, Elon’s hero journey is like a billionaire of the people getting his trophy media outlet, just like Warren Buffett did when he started buying the Washington Post in 1973 and the Buffalo News in 1977.
On April 4, Twitter shareholders got excited when they found out that Elon Musk had acquired 9.2% of Twitter or $2.64 billion, making the stock price spike from the $30/40 per share range to the $40/50 per share range throughout April.
Presumably to maintain job security, it appears Twitter’s management tried to limit Elon Musk’s ability to take over the company by originally saying he could only own up to 14.9% of stock and they tried to throw him a bone of a board seat. But Elon wanted the whole enchilada.
On April 14, Elon Musk offered to buy Twitter for $44B or $54.20 per share to transform it as a private company, which would be about a 43% premium over the $25B market cap Twitter currently has as of the second week of July 2022.
On April 25, Twitter announced it had accepted Elon Musk’s bid to acquire the company.
But then there was trouble in paradise in May as to the true impact of Twitter’s fake and spam accounts and the stock price came back down to earth.
Supposedly, Twitter’s fake and spam accounts are less than 5% of their daily active users. But no matter what Twitter seemed to do, their answers were not good enough for Elon Musk.
Twitter is now trading in the low to mid $30 per share range, similar to when Elon first started buying it in late January 2022. This suggests that many shareholders have all but given up hope that Elon would actually go through with buying Twitter.
Though Twitter is using the specific performance clause in the merger agreement to sue Elon to follow through with his purchase, this is going to lead to a long court battle because Elon believes that Twitter is in “material breach” of the contract. While the outside $25.5 billion debt and margin loan financing is still in tact, the deal is subject to regulatory approval.
The courts could rule in favor of either side, depending on the meaningful extent of the fake spam and bot accounts and if this seriously jeopardizes the fundamental economics of the deal. Maybe the fake accounts are a legit part of why Twitter isn’t earning as much free cash flows and net income as it could be.
While the courts can force a company or individual to carry through with a merger or acquisition of a company, like what happened to Tyson and Kohlberg & Co, sometimes they only order damages to be paid rather than force someone to buy a company they no longer want. Even if Elon prevails to terminate the agreement, he would owe a $1 billion breakup fee.
And maybe shareholders shouldn’t give up hope yet because as of July 8, 2022, Elon Musk appears to still own 73,115,038 Twitter shares. That would be equal to about 10.5% out of the 764.3M shares outstanding. This compares to the majority of Twitter’s management and board of directors owning hardly any shares, so Elon is more of a vested investor in Twitter than the people who are running it.
With Elon being the biggest Twitter shareholder, he seems to be acting in the better interest of shareholders than the management team is doing currently. While they have a fiduciary duty to get the best sale price, their poison pill tactics to date seem to be less in shareholders’ interests. For example, Twitter laid off a bunch of workers which doesn’t seem beneficial as an outside shareholder looking in.
In addition, I believe Elon has a way better future vision for the company so I’m rooting for him to succeed because in late April 2022 when the blockbuster deal was announced, Elon said:
“Free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated. I also want to make Twitter better than ever by enhancing the product with new features, making the algorithms open source to increase trust, defeating the spam bots, and authenticating all humans. Twitter has tremendous potential – I look forward to working with the company and the community of users to unlock it.”
I think Elon Musk’s end game is that he wants to lower Twitter’s sale price and my prediction is that he’ll eventually go through with the deal when he gets the information and lower price he’s looking for. “Chuckmate” as Elon jested.
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