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Wall Street reactions to Elon Musk’s Twitter offer

IIn most cases, the news that a company could be bought out at a price above its market value sends investors into a buying frenzy that sends the company’s stock price up. But that wasn’t exactly the case for Twitter on Thursday.

Shares of the company fell nearly 2% in regular trading on the day Elon Musk offered to buy the social media platform for $43 billion, about $7 billion above its valuation current stock market.

Lack of investor support is one reason Wall Street analysts doubt Twitter’s board will accept the offer. This could be a sign that investors are disappointed with Musk’s offer, especially regarding how he would finance it. On Thursday afternoon, a flurry of investment firms began advising clients to sell their Twitter shares.

Those concerns proved true Friday morning, when Twitter unanimously passed a type of shareholder rights plan often referred to as a “poison pill,” aimed at making it harder for Musk to take control of the company. The defensive tactic allows shareholders to acquire more shares of the company at a relatively cheap price, diluting Musk’s stake if he were to acquire more than 15% of the company. But that won’t necessarily stop Musk. The company’s board could still approve Musk’s purchase, likely at a higher premium.

Read more: “The idea exposes its naivety.” Twitter employees explain why Elon Musk is wrong about free speech

As Twitter’s board considers how to proceed, TIME has reached out to several analysts and investment firms about the decision-making process. Most agreed that Musk’s offer of $54.20 per share was too low given that the company’s closing price was $73.34 just a year ago. An offer closer to $60 per share would be more likely to entertain the board.

“No one questions Musk’s genius and ability to make Twitter better,” said Brent Thill, equity analyst at Jefferies. “But it will take a higher price to get a deal done.”

Rich Greenfield, an analyst at research firm LightShed Partners, says Musk’s offer will likely put pressure on Twitter’s management, but remains far from the type of offer the company’s board would struggle to make. to refuse.

At first glance, Musk’s $43 billion bid for Twitter might seem like a no-brainer: it’s way more than the company’s current valuation. But a transaction like this requires careful analysis of investor feedback and the future of the business. Investors, analysts say, are reacting as if this is all just another of Musk’s jokes.

And that could very well be a joke, analysts told TIME, fuming a hidden pot message in its $54.20 per share offer (420 is slang for cannabis). It’s unclear why Musk chose that specific number as his offer, but it wouldn’t be the first time he’s referenced cannabis. He smoked a joint during a 2018 taping of Joe Rogan’s podcast and tweeted that he could take Tesla private at $420 a share.

“No board on the planet would ever say yes to something with a 420 reference,” Thill says. “He was talking on his TED Talk about how he tweets a lot about his toilet… Looks like that offer was made on the toilet.”

Although Musk called it the “best and last offer” and promised to reconsider his 9% stake in the company if rejected, several analysts find it hard to believe that he will not budge. After rejecting a seat on the company’s board and tweeting a series of insults about the company to his 81 million followers, Musk may have to scale back his quest for sole ownership and instead structure the company. agreement around a consortium of people, which seems likely. “We will try to bring together as many shareholders as we can,” Musk said during a live interview with TED Talk on Thursday.

But Wedbush analyst Daniel Ives expects a different scenario. He thinks it’s unlikely that any other bidders or consortium will come up with a more aggressive bid, forcing Twitter’s board to accept Musk’s offer. Whether Twitter will attract interest from other players is debatable, other analysts say, given Big Tech’s history. The biggest companies in the world always seem to be looking to get bigger.

Microsoft, for example, acquired professional networking platform LinkedIn for $26.2 billion in 2016 – the same year Salesforce CEO Marc Benioff was considering offering up to $20 billion to acquire Twitter. Benioff, owner of TIME, dropped out of the move after investors refused. Still, the tech industry is rife with acquisitions and mergers, which is why many believe it’s possible, if not likely, that another suitor will step in and make an offer on Twitter. “He doesn’t lack interest,” says Thill.

Even so, Musk’s $43 million offer could be a long shot for another reason: money. Despite his vast fortune – Musk is the richest man in the world – almost all of his fortune is tied to shares of Tesla and SpaceX. He is considered cash-poor, according to court records, and would likely have to approach banks for debt financing to buy and take Twitter private. Ives estimates that Musk should borrow between $15 billion and $20 billion.

Speaking at Thursday’s TED Talk, Musk admitted he wasn’t sure he could pull it off, but added that he had “good enough assets” and “could technically afford it.” Another option for Musk is to sell his stakes in his various companies, but that would trigger massive tax bills and reduce his control.

With no clear indication of how he will pay for the deal, analysts aren’t sure it will happen. Most companies, they say, will not enter into sales talks without cash on hand or without a guarantee from a bank.

Read more: What Happens Next With Elon Musk’s Bid To Buy Twitter

Ann Lipton, a law professor at Tulane University, said that while Twitter’s board has a legal duty to act in the best interests of its shareholders, it also has “tremendous power discretionary” to decide what that actually means. But Thursday’s market returns could be an early indicator of what’s to come.

Saudi Prince Al Awaleed bin Talal, one of the company’s largest shareholders, wrote on Twitter that he should reject Musk’s offer because it does not come close to the “intrinsic value” of the company. Twitter’s major institutional shareholders, including The Vanguard Group (10.3% stake), Morgan Stanley Investment Management (8% stake), and BlackRock Fund Advisors (4.6% stake) did not comment, but Musk wants to gain their support. “It would be totally indefensible not to put this offer to a shareholder vote,” he said in a Twitter post on Thursday. “They own the company, not the board.

Analysts say it’s possible Musk will take his offer directly to shareholders, rather than the board, in what’s being dubbed a “tender offer” that would allow shareholders to sell their shares directly to Musk, but the reactions so far have not been positive.

A self-proclaimed “free speech absolutist” with millions of Twitter followers, Musk has been one of the platform’s most vocal critics. He says Twitter should be a hotbed for free speech, long saying the platform shouldn’t moderate content too strictly. “When in doubt, let it be,” he said at Thursday’s TED Talk of tweets that fall into a gray area.

The implications of a Musk takeover could be significant in other ways as well. He recently joked on Twitter that he wanted to turn the company’s headquarters in San Francisco into a homeless shelter because “nobody shows up anyway.” He has the idea of ​​removing the “W” from the namesake of Twitter. Such moves, even if mentioned in jest, could damage the company’s reputation and culture, analysts say, and will likely make it harder for Twitter’s board to sell to him. The Securities and Exchange Commission could also present a problem for Musk, as legal analysts warn they could investigate his relationship with Twitter. Specifically, the SEC could investigate his public statements and other filings to determine if he was attempting to manipulate the company’s stock price.

“I don’t necessarily think that’s what happened,” Lipton says, “but I think given the late filing of his ownership and the ever-changing plans for the business, all of this could very well raise questions for the second.”

A Twitter spokesperson said Thursday that the board will carefully consider Musk’s proposal and determine the best course of action based on the interests of the company and its shareholders. The ball is in Twitter’s court.

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Write to Nik Popli at [email protected]


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