Musk's Coup Complete With $44B Buyout of Twitter
Twitter's board buckles, blesses Tesla CEO's bid, putting a likely end to what has been a mostly disappointing stock.
Elon Musk is buying Twitter (TWTR, $51.70) for $44 billion and taking the social media platform private.
Twitter's board of directors accepted the Tesla (TSLA) CEO's offer of $54.20 a share late Monday. Thus marks the likely end to a three-week drama that at times appeared to veer between comedy and even farce.
After all, with Musk, it can sometimes be difficult to tell the difference. But once the world's richest person lined up more than $46 billion in financing over the past few days, it became clear that his buyout bid was no joke.
And make no mistake, it's a seriously good deal for TWTR shareholders.
Elon Musk's Buyout Deal for Twitter: The Basics
At $44 billion, Musk is paying a premium of 21% to Twitter's enterprise value, or its theoretical takeout price that accounts for both debt and cash.
The deal looks even better when you consider what the market thought about Twitter prior to Musk's interest – which is to say, not much.
Musk is paying a 38% premium to where TWTR stock traded before the mercurial billionaire disclosed his original 9.1% ownership stake in early April. Even more impressively, Musk's Twitter buyout equals a whopping 54% premium to what he paid when he first began building the position in late January.
The fact is that the market has been very down on Twitter stock for a very long time. Analysts' consensus recommendation has been stuck at Hold for six years, according to S&P Global Market Intelligence.
And with good reason.
Twitter Is Great, But TWTR … Not So Much
Twitter is a classic example of a company with a great product and a fantastic brand – but a bad business. The advertising model that works so well for passive, lean-back screen experiences like television doesn't translate to the active, lean-in engagement process of scrolling and tweeting.
"Twitter does $3.5 billion a year in revenue, a business roughly the size of the Olive Garden," tweeted Josh Brown, CEO of Ritholtz Wealth Management. "You have to admit today is hilarious."
That disconnect between product and business explains why Twitter stock has been such a disappointment for much of its relatively short life in the public market.
TWTR's initial public offering (IPO) priced at $26 a share on Nov. 7, 2013. Musk's takeout price means anyone still hanging around on the IPO cost basis is sitting on a gain of 108%. That's pretty weak, considering the S&P 500 booked a price gain of 141% over the same period.
Musk's Twitter buyout price is also of little solace to anyone who bought the stock when it was hitting all-time highs in early 2021. TWTR once topped out above $77 a pop. Selling to Musk at $54-and-change means taking a loss of 30%.
If nothing else, Musk's involvement in TWTR stock gave it a catalyst analysts had been praying for – and were grateful to receive.
Plenty of them were rooting for Musk to prevail. Some even viewed a potential loss for him as an eventual win for shareholders. As CFRA Research analyst Angelo Zino (Hold) told clients last week:
"We do believe Musk's recent endeavors ultimately ends up being a positive for long-term shareholders even if a deal is thwarted, as it likely lights a fire under the management team (something will need to fundamentally change)."
The ink isn't dry; the deal is far from closed. But the way things look right now, Twitter shareholders won't have to worry about Twitter stock for much longer.
Twitter – all of it – will be Elon Musk's problem, and his alone.