How Elon Musk’s Twitter Offer Went From No Go to Reality

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Twitter stock remains below the price Elon Musk is offering.

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Joshua Lott/Getty Images

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Elon Musk has sealed the deal on Twitter,

The social media company said Monday afternoon that it has agreed to be acquired for $54.20 per share in cash by an entity wholly owned by Tesla CEO Elon Musk, in a transaction valued at approximately $44 billion. While there are no guarantees that a deal will go through, Twitter stock (ticker: TWTR) rose Monday on the deal news and earlier positive headlines about the negotiations.

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“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 Musk in a news release, “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 shares were up 6.3% at $52.00 as of 3:15 pm Eastern time, shortly after the stock reopened for trading after being halted for the release of news. The S&P 500 and Dow Jones Industrial Average were both in the red.

Twitter stock remained below $54.20, Musk’s bid price, and the $54.47 level reached on April 5, the day after Musk disclosed a 9% stake,

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Shares reached those heights despite Musk describing his initial stake as passive. At the time, investors didn’t seem to buy Musk’s passive stance and expected the world’s richest human to play a more active role in the social media platform.

Investors were correct. Today’s news comes just 20 days after Musk revealed a 9% stake in Twitter on April 4. It’s taken little time for his passive stake to turn into a deal that might reshape social media. When offered a board seat, Musk rejected it and, instead, sent an unsolicited bid to buy the company. Musk described that $43 billion offer as his “best and final.”

Twitter stock closed down 1.7% to $45.08 a share on April 14, the day the offer was disclosed. Investors weren’t convinced Musk’s offer would be successful.

And that turned out to be true. Twitter adopted a so-called poison pill, a defensive move designed to thwart unsolicited bids by making them more expensive for the acquirer, on April 15.

Investors started to wonder if Musk could finance the bid. Musk’s wealth is in the range of $300 billion. Investors in Tesla, however, wouldn’t want to see Musk sell Tesla stock outright to buy Twitter. Tesla investors would prefer to see Musk finance Twitter.

Last week, Musk announced he had lined up $46.5 billion in financing for a Twitter buyout. He also floated a buyout structure that would let some existing Twitter shareholder stay in Twitter if Musk was successful in taking the company private.

The financing and structure look like a smart chess move. Twitter stock closed up 3.9% the day following the financing report. Between the April 14 bid and financing, a process that took a week, Twitter stock ground higher, closing up about $4 at almost $49 a share.

Musk will pay for Twitter using $25.5 billion in debt and margin loan financing along with $21 billion in equity commitments.

Shortly before the stock was halted, investors were still pricing Twitter roughly $4, or 7%, below Musk’s bid price. Apparently, they weren’t sure what to do. It turns out that they would have done well by betting that Musk would win.

Wedbush analyst Dan Ives suspects that Twitter solicited offers and wasn’t sure Twitter could do better than $54.20. “While the Board approved the poison pill which essentially gave them time to find a white knight and second bidder, likely they are now empty handed,” wrote Ives Sunday. “Twitter reports earnings later this week which likely will not be rainbows and smiles thus putting further pressure on the company around this game of high stakes poker with the Musk bid looming.”

Twitter reports earnings on April 28. Earning will matter less now that Musk is on board.

Write to Al Root at [email protected]

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Credit: www.marketwatch.com /

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