stocks

Musk's Twitter Buyout Offer Means the Endgame Is Near

Tesla CEO's $54.20-per-share bid for TWTR is a 'best and final' offer that will either see Musk rebuffed or Twitter taken private.

If it wasn't obvious before, Elon Musk was never going to be a "passive" shareholder in Twitter (TWTR, $45.85). 

The Tesla (TSLA) CEO and world's richest person offered to buy the social media platform for $54.20 per share in cash, according to filings with the Securities and Exchange Commission late Wednesday. Musk's Twitter buyout offer translates into about $43 billion.

The bid represents a premium of 18.2% to TWTR's Wednesday closing price, and a 38% premium to where it traded before Musk disclosed his original 9.1% ownership stake in early April. 

Most powerfully, Musk notes that his buyout price for Twitter represents a whopping 54% premium to what he paid when he first began building his position in late January.

Musk intends to take Twitter private, saying the company has "extraordinary potential. I will unlock it." 

Musk's Twitter Buyout Offer: As Good as It Gets?

The mercurial billionaire made clear this is a take-it-or-leave it buyout offer, saying in the filing that "I am not playing the back-and-forth game. I have moved straight to the end. It's a high price and your shareholders will love it."

More worrisome: Musk essentially threatened to dump his TWTR holdings should Twitter reject his bid.

"If the deal doesn't work, given that I don't have confidence in management nor do I believe I can drive the necessary change in the public market, I would need to reconsider my position as a shareholder," Musk said.

As Twitter's single largest shareholder, Musk's threat needs to be taken seriously, especially given his history of, shall we say, unpredictable behavior.

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After all, Twitter thought it had reached a sort of detente with Musk only days ago. The Tesla CEO was offered a seat on the board of directors in exchange for a commitment to purchase no more than 14.9% of Twitter's shares outstanding.

But Musk almost immediately changed his mind and declined board membership. The fact that directors are fiduciaries, and therefore are restricted in what they can publicly say (and tweet) about the corporations they serve, presumably factored into his thinking.

The latest chapter in this drama leaves Twitter investors – to say nothing of Twitter management and its board – in a bind.

Musk's interest in TWTR provided a much-needed catalyst. Shares lost 20% in 2021, a year in which the S&P 500 gained 27%. They were big-time market laggards in 2022 too – until Musk disclosed his interest.

The Twitter buyout offer has some analysts advising clients to get out while the getting is good. CFRA Research analyst Angelo Zino downgraded TWTR to Hold from Buy Thursday, saying most of the upside he forecast has been achieved.

"The offer price should be viewed as enticing to shareholders and will be difficult to reject," Zino writes. "If rejected, we fear Musk could walk away rather than raise his offer (we take him for his word), which would likely drive shares considerably lower. At current levels, we downgrade as our thesis has largely played out."

That's putting it diplomatically. If some market participants disliked TWTR stock before Musk got involved, they really can't stand it at current levels.

Then there's Wedbush analyst Daniel Ives, who believes Musk will prevail.

"Ultimately we believe this soap opera will end with Musk owning Twitter after this aggressive hostile takeover of the company," says Ives, who rates TWTR at Outperform (equivalent of Buy). "It would be hard for any other bidders/consortium to emerge and the Twitter board will likely be forced to accept this bid and/or run an active process to sell Twitter."

The market, for its part, is taking a more skeptical view. Twitter's price action suggests this is far from a done deal. Note that TWTR shares were trading around $46.50 early in Thursday's session – well below Musk's buyout offer of $54.20.

Bottom Line

Musk already has Tesla, SpaceX and the Boring Company in his considerable portfolio of responsibilities. As such, a successful Twitter coup d'etat has all the makings of a "be careful what you wish for" outcome. 

As Bloomberg's Matt Levine once wrote, Musk owning 9% of Twitter makes him Twitter's problem. "If Elon Musk buys Twitter, Twitter is his problem."

And Musk certainly has plenty of problems as it is. Indeed, we shouldn't forget yet another constituency that's less-than-enamored of Musk's latest jape: Tesla shareholders.

The electric vehicle manufacturer's stock slumped after Musk disclosed his Twitter bid, and it's not hard to guess why.

"As the CEO of a trillion-dollar company, Elon Musk should focus on Tesla and not waste time attempting to acquire and manage a $43 billion company," says David Trainer, CEO of New Constructs, a Nashville-based investment research firm.

Twitter stock is up more than 50% from its 52-week low, but every investor's cost basis is different. Just remember: There's no shame in plotting an exit from what has been a very frustrating stock for a very long time.

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