Elon Musk’s nearly $44 billion takeover bid got acceptance from Twitter. Thereby, bringing the billionaire Tesla CEO one step closer to owning the social media network.
The transaction is going to finalize later this year. Before the purchase is final, shareholders, regulators in the US, and other countries where Twitter does business must weigh in.
Musk is off to a solid start in the process. The board of Twitter has overwhelmingly approved his bid and urged that shareholders do the same.
The bid represents a 38 percent premium to Twitter’s closing stock price on April 1, 2022. It is a “substantial cash premium” and would be “the best path forward for Twitter’s stockholders,” according to Twitter. The adoption of a “poison pill” anti-takeover clause by Twitter’s board happened just 10 days ago. It was interpreted as an indication that the board was preparing to reject Musk’s initial offer or seek another suitor.
However, the battleground shifted radically late last week. Musk revealed he had set aside USD 46.5 billion for the purchase, including USD 21 billion of his personal wealth.
Other investors, according to Musk, may be able to contribute to the funding. The committed funding emphasized Musk’s commitment. It also looked to open the way for other significant shareholders interested in learning more about his intentions for the San Francisco company.
The specifics of those discussions are unknown. But Musk has a more than 20-year track record of developing and running firms. It includes most notably him being the longstanding CEO of Tesla.
The electric car manufacturer is currently valued at $1 trillion, which is nearly 25 times that of Twitter.
“Musk can do the impossible”
“I think there is nothing better for Twitter than Elon Musk buying it and ideally replacing the board, and also doubling down on investments into products and new revenue-generating sources,” said John Meyer. He is a technology entrepreneur and investor.
“Musk has the track record that he can do the impossible”. It would be easy to see why other Twitter shareholders might welcome a shake-up, as well as an opportunity to cash out of their investment.
Before Musk revealed his 9% stake in Twitter earlier this month, the stock was trading for less than USD40. It is not much higher than its initial public offering price of USD26 in November 2013.
Even with a recent slump, the tech-driven Nasdaq has more than tripled since then. When compared to the two dominating powers in digital advertising, Google and Facebook, Twitter has been a laggard. It is because the company has struggled to regularly record profits while achieving sluggish revenue growth.
Meanwhile, Tesla’s stock is now roughly 300 times more valuable than it was when it first went public in 2010. After more than a decade of battling to make money, the automaker is now tremendously profitable. It has net profits of USD 3.3 billion in the first three months of this year alone.
Not a financial perspective
When a firm agrees to be bought, the buyer gets a deeper look at its accounts. It is to make sure there aren’t any red flags that haven’t been shown through the company’s public filings.
Angelo Zino, a CFRA tech analyst, says this step is unlikely to present any problems for the deal. “He’s acquiring this company, not from a financial perspective,” Zino said.
“He’s going to do what he wants with it and he’s probably going to look to make significant changes to the business model of the company”. According to Zino, Twitter made $5 billion in revenue last year. $2.8 billion came from the United States and the remainder came from other countries.
The proposed Twitter takeover might be reviewed by the Federal Trade Commission in the United States or the European Commission in the European Union.
The key concerns of the agencies are how a company sale can influence competition in an industry and whether it violates antitrust laws.
These evaluations can take months or even years. But they are often more of a possible stumbling block when two companies in the same industry merge, or when a single buyer has a big position in companies in the same industry.
Musk’s reorganization
Neither Tesla nor Musk’s other business, SpaceX, is a social media platform. Therefore, antitrust problems are unlikely to arise when regulators scrutinize the acquisition, analysts said.
“We do not expect any major regulatory hurdles to the deal getting done as this soap opera now ends with Musk owning Twitter,” Wedbush analyst Daniel Ives states in a research note Monday.
The purchase is likely to finalize in 2022, pending Twitter shareholder approval. Twitter hasn’t said when a shareholder vote will take place. The company’s annual meeting is taking place on May 25, which could be a good moment to poll shareholders.
Even before authorities have completed their investigation of a proposed takeover, a firm can choose to hold a shareholder vote at any moment.
It’s unknown what will happen to Twitter’s present board of directors or management team if the sale goes through. But Musk has made it clear that he believes the company is mismanaged.
That evaluation strongly suggests that Elon Musk’s reorganization will entail a purging of Twitter’s top ranks.