Is a Twitter deal on for Musk?

Is Twitter a lousy deal for Elon Musk?

Last week I said in my blog that Twitter is a lousy investment. On the face of it, that may seem to be the case. Of course, I was wrong. 

Twitter is ubiquitous in our lives. From world leaders to drug-dealers, sex-workers, and politicians. Depending on who one follows on the platform, posts just scroll on by, interspersed with the occasional “sponsored content”.

Essentially Twitter makes its money by selling advertising and a little bit of data. There are better commercial vehicles for advertisers, and the thinking is that if Twitter remains unmoderated, advertisers will go elsewhere. Twitter claims, and I first heard Musk saying “Twitter is the town square of the world.” And that town square has just been plonked in every kid’s lap.

There must be a better way, through the spam, bots, rage, and misinformation. Musk claims he has the recipe. He may have overlooked the fact that 90% of the users are not in the USA. Democracy is not necessarily its “thing.” Perhaps he’s counting on it.

I am reminded that he ran into trouble two years ago when, fed up with short-sellers, he suggested that he was going to take Tesla private: "Am considering taking Tesla private at $420. Funding secured."

$420 per share. It’s probably nothing.

He is adamant now that he was forced to sign a consent decree admitting to his wrong doing, and accepting the sanction. 

Musk suggests a 100% deal on Twitter

Since my last Musk blog Elon Musk made a tentative offer to purchase the entire share capital from all the shareholders at $54.20 per share. The total amount which would be payable is $44Bn in cash, less the price of his own shares, already bought at a much lower price. The “4.20” in the $54.20 price is a weed joke which is beyond me. Perhaps you need a minimum THC blood content to get it.

Immediately, some big Twitter shareholders objected and said they would decline because it was worth a lot more than that. That sort of response is very boiler-plate, automated stuff. Of course, Musk could simply find at least another 40,9% shares to buy at the inflated price. With control, he could fire the board and put his own guys in. Then the new board could adopt a resolution to merge with another company at a much lower price. So it is a tenuous position to be in as a dissenting shareholder.

Musk must now deal with a Twitter "poison pill"

To protect themselves and shareholders, the Twitter board adopted a “poison pill”. It’s a strategy which was sanctioned in the Delaware Supreme Court years ago. Twitter is registered in Delaware. So are all of Musk’s companies.

Twitter’s poison pill or “Adoption of a Rights Plan” decreed that if any single shareholder acquired more than 15% of Twitter shares, then all the other shareholders, excluding the 15%er (Musk) could buy $420 worth of Twitter stock for $210. Crazy, right? But it’s a thing. And there’s the 420 thing again to make it even more crazy. The Board throwing shade right back at Musk.

Seriously? Are we in a loop of Indiana Chong and the Raiders of the American Pie?

Anyway, the Board’s move has given it time to think and plan while Musk considers his own next move. They will be worried about Musk acquiring more shares secretly and illegally.

Remember that he filed his SEC notice 6 weeks late. In the time from when he should have notified SEC until he actually did, he acquired almost half those shares. Was it because he knew the announcement would affect the share price? When he did eventually file, the share price jumped up 35%.

Musk is on record as essentially describing the SEC as corrupt, during a TedTalk interview at the time of his play for Twitter.

The late filing is estimated by some commentators to have cost sellers of the stock a collective $160M. When will those fights begin?

The poison pill means that Musk is now forced to make an offer to all shareholders, and he must have the cash means to settle all takers at once.

 The Board is in a better place to negotiate the terms of the 100% acquisition. Musk would of course want the poison pill removed simultaneous to such transactions.

Some other options for him:

• He could just dump what he already owns, and walk away.
• He could become a noisy activist shareholder, running proxy battles with the board until something breaks.

He has previously cut his losses and moved on. But he has also said often that he hates losing.

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