There is something curiously old fashioned about Elon Musk’s $43bn bid for Twitter.
Suddenly, we’re discussing a hostile mega-bid and tactics like a poison pill defence. Once, such battles were commonplace, but latterly they’ve gone out of fashion, with boards and bankers preferring to reach agreements behind the scenes rather than pursue all-out war.
Mr Musk’s tilt, though, is a colourful throwback. He hasn’t got the cash himself – the Tesla king may be hugely asset rich but he has little actual spending money and certainly not on that scale – so he will have to team up with someone, probably from private equity. In which case, how will the earnest number crunchers work with one so mercurial as Mr Musk?
This is one of several imponderables about his declaration. Already, Mr Musk’s relationship with Twitter is proving to be something of a typical, high stakes adventure. One minute he is a benign shareholder, discussing joining the board. The next that’s ditched and he wants to take the entire corporation private and run it himself.
If Mr Musk is true to his word and follows through, an acquisition such as this could go on for many months.
This would be the opening gambit. If Twitter does not keel over – and by declaring a “limited duration shareholder rights plan”, giving existing stockholders the option to buy more shares at a lower price, so effectively diluting a new, hostile party's stake, it is putting down a marker for resistance – will Mr Musk lose patience and pull out?
By showing his hand, Mr Musk has put Twitter into play. Would another bidder, like Thomas Bravo LP, the private equity tech specialist, launch their own strike, possibly with the backing of Apollo, the giant buyout firm? They could, of course, side with Mr Musk, but they would have to somehow work with his ego. It might be easier, and cleaner, to go for Twitter themselves.
The predators are circling. Morgan Stanley, the Wall Street behemoth, is ready to support a deal. Mr Musk says he’s got backers without identifying them.
There is risk here. Normally, those who put up this level of finance like to see a nice, guaranteed revenue stream, ideally from a solid product. The more boring the target the better.
There is nothing dull about Mr Musk or Twitter. Arguably, the reason he is so interested is precisely because Twitter is not generating steady earnings. He’s aiming at a business that is in weak, potentially volatile, shape.
Twitter vs Facebook
The easy supposition is that Twitter is another Facebook, that the latter, now grouped as Meta, was two years earlier to launch but that the former has the potential to match, stride for stride.
Twitter has enjoyed a high-profile rise, thanks in part to its adoption by celebrity users, including Donald Trump and Mr Musk (coincidentally, a US court ruled last Friday that Mr Musk knowingly made false statements when tweeting about taking Tesla private in 2018, claiming he had the funding when he did not).
But here’s the comparison: Facebook shares have risen 300 per cent since listing; Twitter’s are up 77 per cent. Facebook has managed to diversify, to stay dynamic; Twitter has not moved enough and is markedly less friendly. Significantly, Twitter is less appealing to the young, while increasingly it’s come to represent some of its famous name Tweeters as a preserve for the curmudgeonly.
Regulators want to get stuck into Twitter as they do Facebook, but of the two, it’s the social media service that is less amenable to interference. Twitter’s USP is the short, snappy, finger-waving statement – if that’s denied on the grounds of taste, then what is it really for?
Magic numbers
Musk’s avowed aim is to make Twitter cosier and sweeter. Instead of being an open content stream as at present, he would use algorithms to enable consumers to be more selective in what they’re exposed to – only seeing feeds in specialist areas of their choice or from verified research, for instance. Power would be put in their hands and, critically, taken away from advertisers. That would cut out much of the nastiness and lessen the arguments, but would people be prepared to pay to subscribe for something that has always been free? Would enough of them do so to replace the advertising that would almost certainly be lost?
Questions, and as yet, no answers. There may be those, again, who saw the Musk assault as a disguise for the traditional investment ploy of pumping and dumping. For that to happen, Twitter shares must be rising. Normally, in such circumstances, they would climb quickly. Mr Musk is offering $54.20 a share and on the day of his announcement they closed at $48.45.
That just goes to show these are not normal circumstances. There are so many unanswered questions.
For now, at least, the investment community is not taking Mr Musk and his attack seriously. That will change if the private equity battalions emerge. It’s early days, of course. For now, they’re content to enjoy the spectacle – it’s not been lost on the market that the Twitter poison pill has an exercise price of $210, allowing each shareholder to pay $210 to acquire stock “having a then-current market value of twice the exercise price”, so $420.
Ah, those magic numbers of 420, the code beloved of marijuana smokers. What’s Musk’s price? $54.20. There you go, $4.20 again.
This is the same Mr Musk who, when a seat on the Twitter board was mooted, liked to joke about smoking marijuana in company meetings.
It was those three figures that cropped up when he claimed to be taking Tesla private for $420 a share with “funding secured”. The SEC sued him for making false statements and said “$420” was intended to impress his then-girlfriend, the pop star Grimes. On Friday, the US court agreed with the SEC.
Musk to buy Twitter, smokescreen or very real? It’s too soon to tell.
