Elon Musk‘s path to buying out Twitter and taking it private is unclear and fraught with obstacles.
In a letter to Bret Taylor, chairman of Twitter’s board, Musk offered to purchase the popular social media company for $54.20 per share in cash. The letter was delivered to Taylor on Wednesday and revealed in a Securities and Exchange Commission disclosure the following day.
“Twitter has extraordinary potential. I will unlock it,” the Tesla and SpaceX CEO said in his letter to Taylor.
Still, there are many questions that remain, including whether the board will end up deciding to go with the plan and where Musk’s capital to make the $43 billion cash purchase will come from.
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Darrick Mix, partner and head of the capital markets practice at Duane Morris, told the Washington Examiner that it is still unclear exactly how an all-cash takeover would play out, although it appears Musk is working to negotiate with the board.
He said that typically the board would need to approve a plan that is either structured as a merger, in which the formerly public company becomes a subsidiary of the company that acquired it, or as a tender offer, in which case the shareholders would be invited to sell their shares at a set price through an invitation by Musk.
In that case, Mix said, “it could sort of go either way — either there is a shareholder vote, or a threshold number of shares must be submitted through the tender offer.”
Musk could launch a tender offer without board approval, Mix said. On Thursday afternoon, Musk appeared to be pushing back on the board having control of the decision.
“Taking Twitter private at $54.20 should be up to shareholders, not the board,” Musk said in a tweet.
He also responded to another Twitter user who surmised that a board rejection of the proposal would be running in direct opposition to the financial interests of shareholders.
“It would be utterly indefensible not to put this offer to a shareholder vote. They own the company, not the board of directors,” Musk said.
While the board met on Thursday morning to discuss the proposal, it did not release any further statements on the matter. Citing a person familiar with the matter, the Information reported that the board sees the attempted takeover as “unwelcome.”
The Wall Street Journal reported on Thursday that the board is considering adoption of a “poison pill” that would block Musk from increasing his stake in Twitter beyond about 15%.
Still, a takeover itself would benefit shareholders, at least in the immediate run.
Mark Weinstein, founder of social media service MeWe and expert in privacy and free speech, said that the offer appears to be a good one.
The offer is a 38% premium over the closing price on the day before news broke that Musk had bought up 9.6% of the company and an 18% increase from Wednesday’s closing price.
For instance, if an investor had bought 5,000 shares of Twitter exactly a month ago (then worth about $165,000), and the Musk offer ends up being accepted, that individual will end up making more than $100,000 off their initial investment.
Musk has also hinted that he could ding the company should it decide not to take up the offer. In his letter announcing the offer, the billionaire said that he would “need to reconsider my position as a shareholder” should the proposal be nixed. If Musk were to dump his 9.6% stake, it would undoubtedly cause Twitter’s value to plunge, leaving the board in a precarious position.
“It’s a chess game almost. It’s a very interesting position. What we don’t know on the outside is what Twitter already has in its road map and where it [was] headed prior to when Musk stepped in,” Weinstein told the Washington Examiner, noting that the social media company might already have a solid plan to increase its worth in motion. He also added that the mandate of the board is to act in the best interest of shareholders.
Weinstein said a buyout would be a “payday” for lawyers, given how much work will need to go into organizing documents, regulatory filings, and mapping out how the payouts will work to the massive number of shareholders.
Another obstacle is Musk’s ability to raise capital for the cash purchase. While Musk is the world’s wealthiest person, with a net worth of $266 billion, the overwhelming majority of that value is tied up in Tesla and SpaceX.
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Musk could decide to sell some of his Tesla shares, although that would give him less control over his largest company and would trigger a big tax bill on his capital gains. Alternatively, he could try to borrow off the value of his shares, which might give him enough cash to purchase Twitter, although banks might be reticent to make such a huge loan secured by a single stock.
“Musk is a card player,” Weinstein said. “It’s going to be very interesting to watch this unfold. This is a huge move.”
