Key Takeaways
  • Elon Musk is making the news once again after submitting a formal bid of $43 billion to buy Twitter takeover.
  • The hostile takeover of Twitter comes after Elon Musk noted in a letter to Twitter Chairman Bret Taylor that for Twitter to reach its maximum potential, it needs to become private so Musk can run it freely.
  • The attempted purchase has left many investors unhappy, leading them to unanimously adopt the "poison pill" plan.
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On April 5, 2022, Elon Musk publicly announced he invested in Twitter after purchasing a 9.2% stake in the company. Due to his significant investment and becoming the single largest stakeholder, people presumed that he would be joining the Board of Directors; however, he has since declined this course of action.

 

Instead of being on Twitter's Board of Directors, he has decided to attempt a hostile takeover. In an attempt to own the social media company, Elon Musk's offer to buy Twitter is around 43 billion dollars, according to his filing with the Securities and Exchange Commission (SEC). The purchase price would mean Elon Musk will repurchase each share outstanding at $54.20, an almost 20% premium on the company's share price as of April 14, 2022. 

 

Editorial credit: Sergei Elagin / Shutterstock.com

 

Despite the high purchase price, many Twitter shareholders, such as Saudi Prince Alwaleed bin Talal, have rejected the offer as they believe the value of the Twitter shares is too low since it was valued at $70 a year ago. 

 

Elon Musk Wants to Take Twitter Private

 

In a letter to Bret Taylor, chairman of Twitter, Musk mentioned that Twitter needs to be transformed into a private company to unlock its extraordinary potential. Musk believes for Twitter to succeed at its highest level, it must become a private company which he can operate as it currently “does not thrive nor serve [its free speech] societal imperative,” he wrote in his letter. 

 

Financial Impacts of Elon Musk’s Twitter Announcement

 

Elon Musk's public announcements usually have some form of economic influence or impact on the companies he mentions. For example, since his hostile takeover bid became public information, Twitter and Tesla's share prices have lowered by nearly 2% and 4%, respectively. 

 

Twitter's decline in share price was due to the potential change in ownership. Typically, when news is speculating about someone joining a company, the stock price rises if the person boosts investor confidence. However, in the case of Elon Musk, investors are not in favor of his ideal direction for Twitter, which led to a decline in share price.

 

Editorial credit: mundissima / Shutterstock.com

 

Similarly, Tesla's stock price decrease is due to a decline in investor confidence in Elon Musk. Prior to becoming involved in Twitter, Elon Musk spent the majority of his time working on SpaceX and Tesla. However, due to his large stake in Twitter, with the possibility of complete ownership, investors are worried that he will spend a large chunk of his time working on changing Twitter into the social media company he envisions. 

 

Investors believe that Elon Musk's involvement with Tesla will decline due to his focus shifting to making adjustments to Twitter. Therefore, they worry that the electronic vehicle manufacturer will struggle to emulate a similar level of success over the past couple of years. 

 

What Happens if Elon Musk’s Bid for Twitter is Rejected

 

As previously mentioned, Musk owns a 9.2% stake in Twitter, and he is hoping he can use his position to take Twitter to the next level. However, in the letter addressed to Bret Taylor, he mentioned how his $43 million bid to purchase Twitter is his final and best offer and will not be open to negotiating the price. 

 

If Twitter's shareholders choose not to go through with the takeover bid, Elon Musk mentioned he would reassess his position with the company. In return, there is a possibility he will be selling his shares in the company and putting the money elsewhere. 

 

Many factors are pointing to an unsuccessful takeover. Most notably, the Twitter board unanimously agreed to adopt a measure called poison pill. Companies use poison pill to wield against unwelcome suitors by giving existing shareholders the option to buy more shares at a lower price, effectively diluting a new, hostile party's ownership stake. However, things could change at the last second, which could entirely modify the current dynamics of the company. 

 

 

 

Disclaimer: The mentioned remarks regarding Elon Musk are not considered financial advice. Should you invest in any companies in which Elon Musk is involved, do your due diligence prior to investing. CapWay is not liable for any losses made from investments based on the above information. 

 

 

Thumbnail and Main Image | Editorial credit: mundissima / Shutterstock.com

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