NEW YORK, NEW YORK – DECEMBER 13: Elon Musk and son X Æ A-12 on stage TIME Person of the Year on … [+] December 13, 2021 in New York City. (Photo by Theo Wargo/Getty Images for TIME)
A week ago, I argued that Elon Musk should not take Twitter private for $41 billion. Today, Musk decided to do the opposite and offer about $43 billion for the social media company.
With shares trading at $49 in pre-market, it looks like investors are not completely convinced that Twitter will accept what he called “his best and final offer,” according to the Wall Street Journal, of $54.20 a share.
Although there could be more upside in this stock, I see the same reasons as I did last week why acquiring Twitter is a bad investment:
- Twitter Has Been A Lousy Investment
- Musk’s Freedom of Speech Is Unabridged Despite Twitter’s Algorithm
- It Would Be Cheaper To Start His Own Social Network
However, if a bidding war erupts for Twitter the shares could go higher (and if no deal happens, the stock will fall back to where it was before).
Musk’s Offer For Twitter
Musk has offered to buy the rest of Twitter that he does not already own for more than $43 billion. He threatened to sell his shares if Twitter does not accept his offer. How so? According to an April 13 SEC filing, Musk said, “If it is not accepted, I would need to reconsider my position as a shareholder.”
After building a 9.2% stake in Twitter earlier this year, he says his offer represents a “54% premium over the day he began investing and a 38% premium over the day before his investment was publicly announced,” according to the Journal.
Twitter said that its board would review the proposal and any response would be in the best interests of “all Twitter stockholders.”
Battling With Bezos
Twitter will be an expensive bauble. That $43 billion represents 15.6% of his $273.6 billion net worth (although his total investment in Twitter is higher). I wonder whether Musk sees acquiring Twitter as his counter to fellow billionaire Jeff Bezos’s $250 million purchase of the Washington Post in 2013 (a far more modest 0.9% of his then $25.2 billion net worth).
In my opinion, Bezos has provided a tremendous public service by pouring the right resources into the Post. As retired Post editor Marty Baron said in February 2021, Bezos bought the Post because “he actually believes in the mission of journalism; that he thinks it’s really important for a democracy; that he believes in democracy quite firmly; and that he thinks it’s important to have an institution like the Washington Post and to make sure that it has a bright future, has a sustainable business model, and can do its work properly.”
I am not sure that Musk has the same idea. Echoing Donald Trump’s inauguration speech — “Only I can fix it” — Musk sees himself as Twitter’s savior. In the amended 13-D filing, he wrote, “Twitter has extraordinary potential. I will unlock it.”
Musk sees Twitter as impeding the societal imperative of free speech. “I invested in Twitter as I believe in its potential to be the platform for free speech around the globe, and I believe free speech is a societal imperative for a functioning democracy. However, since making my investment I now realize the company will neither thrive nor serve this societal imperative in its current form. Twitter needs to be transformed as a private company,” he wrote.
I do not know why he thinks that Twitter is abridging freedom of speech — unless he thinks that freedom of speech means the right to inflame popular rage, incite violence, and do other things that erode our civilization.
How Will Musk Pay For Twitter?
Were Musk to go forward with the deal, he would need to decide whether Tesla should acquire it or he should take over the company as a personal investment. In theory, Tesla could acquire Twitter. But more likely, Musk will pay for the company himself — and one way to finance that would be to sell Tesla shares — which are down 1.7% in pre-market trade.
One analyst thinks that another possibility is to borrow the money. Neil Campling, head of TMT research at Mirabaud Equity Research, told Bloomberg that Musk — who hired Morgan Stanley to advise him — “will have to sell a decent piece of Tesla stock to fund it, or a massive loan against it.”
Musk has thrown a bone to numerologists and marijuana aficionados by including the number 420 in his offer — what Bloomberg referred to as a “coded reference to marijuana.”
Recall that his woes with the SEC were inflamed by that number in 2018 when he Tweeted that funding was secured to take Tesla private for $420 a share.
Is the funding secured for Musk’s Twitter go private deal?