Phewww. That was fast!
A little over 11 days after Elon Musk proposed paying $54 a share for Twitter, the company’s board approved the transaction on Monday, a surprise reversal. Twitter initially seemed opposed to the idea—it adopted a poison pill, a defense against an unsolicited bid like Musk’s—but warmed up to it last weekend after Musk detailed how he could pay for it. Answer: A lot of debt (about $25 billion), some equity (roughly $21 billion), all of it wrapped in Musk’s Tesla shares. (He has lots of those, around $230 billion worth of them.) It adds up to a $44 billion price tag on Twitter, a 38% premium over where the stock traded when Musk first disclosed his shareholding.
So that’s it—Elon won? Can we expect to see a spaceship in employee parking starting any day? Truthfully, we’re a few orbits around the sun from that, but Musk is definitely on course to getting what he says he wants.
What Are Musk’s Next Steps?
The agreement between Twitter’s board and Musk doesn’t seem to include a “go-shop period.” Some buyout deals have these provisions, a time in which the board welcomes any competing bids. (It’s like when the auctioneer with the honeyed voice starts with, “Going once, going…”) Go-shops vary in length, their terms dictated by what buyer and seller agree to. (Generally, about a month to six weeks.) Adding a go-shop is seen as favorable for investors, 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 strange for Twitter not to do one. (Skipping it will add to the feeling on Wall Street that even with JPMorgan’s and Goldman Sachs’ help, Twitter found little interest when it shopped itself around over the last few weeks, trying to avoid Musk.)
Musk will next make a $54.20 tender offer to raise his shareholding in Twitter to at least 50% or higher. A tender offer is where he asks shareholders to sell him their shares. He owns 9.2%, some 73.5 million shares. To get over 50%, he needs another 319.5 million shares, which will cost $17.2 billion. Easy-peasy. He has $46 billion in financing 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 some member(s) of Team Musk have undoubtedly added up the yeses from last weekend and knows Musk can cross over to majority control. There is the fairly unlikely scenario of some sudden shareholder revolt, stopping him from passing 50%. Again, pretty unlikely. The board has given its stamp of approval, and the deal has received a thumbs-up from many of the analysts following Twitter.
The tender offer will stay open for 20 business days. “And then any shareholder who didn’t tender into his offer will get cleaned up by the company,” says Brian Quinn, a corporate law professor at Boston College. “The company cuts you a check for $54.20 for every share you still own.”
What Could Stop Musk?
Other than some unforeseen act of god, very little. U.S. regulators don’t seem likely to oppose it over anti-trust concerns, since Twitter is not combining with, say, Snap or something.
What we can’t account for or really predict is some act of Elon. In anything Musk-related, there is a small but non-zero chance of the once-in-a-lifetime unexpected thing happening right now, immediately at this point in our lifetimes. The man truly redefines convention and predictability. One minute, he’s on Twitter making penis jokes involving Bill Gates. The next, he’s buying Twitter, having won approval from a board of 11 highly educated and well-compensated directors, including Twitter’s cofounder 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 is staying to see that process finish. After that, it won’t be a surprise to see him go, perhaps less than a year after taking over the job from Dorsey last November. Musk has been none too quiet about his criticism for Agrawal and current-state Twitter. If he wants to fire Agrawal, it will trigger a $38.7 million severance package, though it probably won’t come to that. More broadly, the company reportedly told employees there won’t be any layoffs “at this time” during an all-hands meeting on Monday.
Coming up, we get see to if the spaceship executive can push Twitter into something more resembling warp speed. (And if he even really wants to.) The company had grown more ambitious in the past couple years after an earlier tangle with another initially unwelcome investor. But Wall Street had come to have increasing doubts about whether Twitter could hit lofty goals Dorsey helped set before he left. That includes revenue growing by 50% from 2021 to $7.5 billion in 2023, a bold projection that won’t be helped by (1) a general slouch in the ad market right now over consumer-spending fears, (2) continued fallout from a change to Apple software that has made mobile ads less valuable and (3) the inherent distraction caused by a hostile takeover, even one concluding as quickly as this one. (This really did move swiftly. For comparison, the Oracle-PeopleSoft saga stretched over 18 months—18!—to get to the same point Musk and Twitter reached in less than three weeks.)
Musk has variously said he’d like the platform to better embrace free speech principles, reduce ads, open up its algorithm, add an editing tool, increase user verification and tamp down on spam bots. He also at one point used a TED Talk interview to suggest he didn’t really care about the business part of Twitter at all. There is, of course, the entire other part of Twitter, the cultural cache it emanates—the part that for 16 years has made Twitter a draw for presidents and celebrities alike and a unhealable sore point for one celebrity-turned-president. This culture part has always seemed in great disproportion to the business part, and such a situation is a blinking-neon invitation to someone like Musk, who will think he can finally fix what Ev Williams, Dick Costolo and Jack Dorsey (twice) could not, since, hey, it can’t be harder than rocketing men into outer space on a semi-regular basis.
Here’s Musk sounding very Musk-like 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 bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated,” said Mr. Musk. “Twitter has tremendous potential – I look forward to working with the company and the community of users to unlock it.”
One thing’s for certain. These alterations will take Musk much more time (and patience) than it did to buy the site in the first place.