Tesla CEO Elon Musk.
Patrick Pleul/POOL/AFP via Getty Images
Elon Musk, the billionaire businessman, has some options if
rejects his nearly $43 billion bid.
Twitter (ticker: TWTR) confirmed Thursday it had received the unsolicited, non-binding proposal from Musk to buy all of its outstanding shares. The social media company said its board would carefully review the proposal and determine a course of action.
On Friday, Twitter adopted a limited duration shareholder rights plan that would “enable all shareholders to realize the full value of their investment in Twitter,” according to a statement.
Companies use poison pills to prevent or discourage hostile takeovers. They do this by selling or issuing new shares to existing stockholders, other than Musk, that will dilute the attempted acquirer’s equity position, said Ele Klein, partner and co-chair of the global shareholder activism group at Schulte Roth & Zabel.
Twitter’s Rights Plan is triggered if an entity, person, or group buys 15% or more of stock in a transaction not approved by the board, Twitter’s statement said. It will expire one year from now on April 14, 2023. “It’s meant to prevent [Musk] from being able to complete the acquisition without negotiating with the company,” Klein said.
The offer from Musk, the chief executive of
(TSLA), came just days after he revealed a stake of more than 9% in Twitter on April 4, and then rejected an invitation to join Twitter’s board. Musk said in an April 13 letter to Twitter Chairman Bret Taylor that he realizes “Twitter will neither thrive nor serve this societal imperative in its current form. Twitter needs to be transformed as a private company.” Morgan Stanley is advising Musk on the transaction, according to a regulatory filing.
Musk has launched a public campaign against Twitter, publicly pressuring the company to consider his hostile bid. The Tesla CEO is going the merger route for his proposal to take Twitter private.
“The question is what Twitter will find out. They may find out there is no committed financing for the offer and if so, may not engage with him,” said Klein.
Musk, who also is the founder and CEO of SpaceX, is said to be worth more than $200 billion, making him one of the richest men in the world. But much of his wealth is tied to Tesla stock, which has placed limits on what he can use to borrow against.
Musk, who spoke Thursday at a 2022 TED conference in Vancouver, was asked whether he had funding secured for the Twitter deal. “I have sufficient assets,” he said.
Tesla didn’t return messages for comment.
Musk could also switch to a tender offer, in which he would buy shares from other stockholders. However, a tender offer also needs financing, Klein said. This route may push Twitter to put in place a poison pill, which would prevent Musk from boosting his stake in the company, Klein said.
Musk, however, can still use the tender offer to his advantage. He can ask shareholders to tender their shares conditionally and if he gets enough support for his tender offer, he could claim that Twitter is standing against the will of its stockholders, Klein said.
If there is financing but Twitter wants a better price, then the parties likely will continue to negotiate. Twitter may reject the offer as too low and say it’s not being valued highly enough. One shareholder, Saudi Prince Alwaleed bin Talal, has already said Musk’s bid undervalues Twitter. Musk, in his letter to Twitter, said the $54.20 proposal was his “best and final offer.” He could still return with a higher bid.
Musk also could continue his PR campaign against Twitter and threaten to launch a proxy contest to replace its board with one that is more favorable to him. But that could take time, possibly another two years, for Musk to take control of the board, Klein said.
Twitter’s salvation may come in the form of a white knight. The company could find another party to buy Twitter. Thoma Bravo, the private-equity firm, is working on a possible bid for Twitter, the New York Post reported Thursday. It’s not clear how much Thoma Bravo would bid or when Twitter might see the offer, the story said. Thoma Bravo declined comment.
Investors see little chance of the takeover happening. Shares climbed on Thursday after the initial news of Musk’s bid, but shed nearly 2% to close at $45.08 when headlines surfaced that Twitter might reject or try to block the offer.
“The market is not taking [Musk’s bid] seriously at all,” one banker said.
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