Is Elon Musk buying Twitter? (Full Twitter thread explained)
There’s been a lot of news this past month surrounding Elon Musk and Twitter, so what’s really going on? (we explain Elon Musk’s and others’ Twitter threads below!)
Let’s Break it Down:
From a high level, here’s what’s happened this past month
- Elon Musk put out a series of polls to his Twitter followers, asking questions about the Twitter platform, with one tweet saying: “The consequences of this poll will be important. Please vote carefully.”
- On April 4th, an SEC filing revealed that Musk had purchased 9.1% of Twitter (TWTR) stock — the largest amount of any individual shareholder.
- Musk is offered a seat on Twitter’s Board of Directors, but he later declines this opportunity.
- 10 days later, Musk offered to buy Twitter for $54.20 a share, or about $43 billion.
- The next day (Friday, April 15th), Twitter’s Board adopted a so-called “poison pill” (we explain what this is below).
- Musk unveils surprising facts about Twitter’s Board and hints at a tender offering, Jack Dorsey, co-founder of Twitter, blasts the Board, and more…
We explain all of this in greater detail with Musk’s tweets below… read on to see how all of this came to fruition.
Elon Musk Polls his Twitter Followers (thread)
March 24th, 2022
- Musk begins the conversation about Twitter, specifically targeting its algorithm and whether it should be open source (available to the public)
March 25th, 2022
- Musk asks his followers if they believe Twitter adheres to the principle of free speech as it “is essential to a functioning democracy”
- As a follow-up to this tweet, Musk tweeted that “The consequences of this poll will be important. Please vote carefully.” — hinting that something may be coming from this…
Although we don’t know for sure, these polls seemed to give Elon enough validation for what was to come next.
Musk Acquires 9.1% of Twitter
On Monday, April 4th, 2022, an SEC report showed that Elon Musk had recently acquired a total of 9.1% of Twitter, making him the largest individual shareholder of Twitter. With the news of someone with a high profile, like Musk, taking a 9.1% stake in the company, Twitter’s shares soared 22% in early trading on Monday.
Whenever an investor buys 5% or more of a company’s shares, they must disclose the purchase in filings with the Securities and Exchange Commission (SEC). Although a stake of less than 10% in a company is considered “passive” in the eyes of Wall Street, Musk’s 9.1% stake signaled to investors that he may try to take a more active role in how Twitter is run, which prompted other investors to buy shares and drive up the price early Monday.
Back to Tweeting
In true Elon Musk fashion, he immediately took to Twitter that morning with this tweet:
Later that same evening, Elon was back to polling his followers, asking about an edit button:
This tweet was yet another hint that Musk may actually start to take an active role in shaping the future of Twitter. We can see from the number of votes on this poll (4.4 million) compared to his previous polls back in March (1.1 million & 2.0 million, respectively) that he has already drawn more attention from the Twitter crowd.
Board Seat Secured
The following day (April 5th), Parag Agrawal, CEO of Twitter, announced that they’ve decided to appoint Elon Musk to their Board:
Agrawal replied in a thread to this tweet with:
At first glance, this looks like a win-win for both parties, right? Not so much.
When reading between the lines and looking a bit deeper, one of the reasons Twitter likely offered a board seat to Elon Musk was to limit the number of shares he could own and prevent a hostile takeover. By sitting on the Twitter Board, Musk would be limited to owning no more than 14.9% of Twitter. He would be able to help influence the company to a certain extent, yes, but he’d never be able to own a majority or all of Twitter.
Nonetheless, Musk seemed all-in on joining the Board with this meme tweet of him smoking weed from a Podcast he did with Joe Rogan back in 2018 with the caption “Twitter’s next board meeting is gonna be lit”:
On Second Thought…
To say Elon Musk is unpredictable would be an understatement.
After accepting a Board seat, pending a background check and formal acceptance, Musk made a U-Turn and declined his offer to join Twitter’s Board of Directors.
With Musk no longer joining the Board, what would be next? What was the team at Twitter thinking? Were they worried about a hostile takeover? Twitter’s Board didn’t adopt a “poison pill” after Musk declined the Board seat, so they didn’t seem worried at all.
And for Musk, what was he thinking? Would he try to purchase more shares to become the majority owner of Twitter? Was he no longer interested in Twitter and planning to sell his shares, cashing out on the profits he already made?
Lots of questions that no one had answers to… at least not yet. Musk helped answer these questions 4 days later.
I’ve Made an Offer
Early Thursday Morning (April 14th), we had our answer…
Elon Musk offered to buy all of Twitter.
He made sure that this was public knowledge by tweeting about it with a link to the official SEC filing.
Details of the Offer
- Elon Musk offered $54.20 per share in cash to acquire all of Twitter (~$43 billion)
- Musk stated multiple times that his goal would be to take Twitter private with this deal
- At $54.20 per share, this price represents a 54% premium over the day before Musk began investing in Twitter (January 28, 2022) and a 38% premium over the day before his investment was publicly announced (April 1, 2022)
- To show how good of a deal this was for Twitter and its shareholders, Musk tweeted a copy of Goldman Sachs’ equity research report on Twitter from February 10th, 2022 where the buy rating had been changed to “sell” and the 12-month price target had been lowered to $30.00 per share
Musk then ran another poll regarding his offer, and from the results, we can see an overwhelming number of people agree that the decision to take Twitter private with this deal should be in the hands of Twitter’s shareholders, not its Board of Directors:
Now MAYBE it’s just a coincidence that the offer contained “420” in it, but we think this was 100% intentional as Musk loves making jokes and tweeting about things like this (as seen in one of his tweets below):
Musk also disclosed the following letter in the securities filing:
“I invested in Twitter as I believe in its potential to be the platform for free speech around the globe, and I believe free speech is a societal imperative for a functioning democracy.
However, since making my investment I now realize the company will neither thrive nor serve this societal imperative in its current form. Twitter needs to be transformed as a private company.
As a result, I am offering to buy 100% of Twitter for $54.20 per share in cash, a 54% premium over the day before I began investing in Twitter and a 38% premium over the day before my investment was publicly announced. My offer is my best and final offer and if it is not accepted, I would need to reconsider my position as a shareholder.
Twitter has extraordinary potential. I will unlock it.”
– Elon Musk
Twitter Responds with a Poison Pill
Just a day after Musk’s offer, the Twitter Board voted unanimously to adopt a limited duration shareholder rights plan, often called a “poison pill”.
What is a “poison pill” and how does it work?
Under this new structure, which is set to expire on April 14, 2023, if any person or group acquires beneficial ownership of at least 15% of Twitter’s outstanding common stock without the board’s approval, other shareholders will be allowed to purchase additional shares at a discount.
In other words, if Twitter were to decline Musk’s offer and he decided to purchase the shares himself, once he hit 15% ownership, his stake in Twitter would become diluted as others would be able to purchase Twitter shares much cheaper than what Musk acquired them for.
Twitter’s Board — Are they the Best Fit?
Little-to-no Economic Interest
In this tweet, Chris Bakke shows that the Twitter Board members only own a total of 77 shares collectively:
Musk responds by saying since they own almost no shares, these board members’ interests likely are not aligned with shareholders:
What Musk is getting at with this tweet is that since these Twitter Board members own almost no shares of Twitter, with the exception of co-founder, Jack Dorsey, they are not aligned with generating the highest return for shareholders. In other words, if these Board members all had substantial ownership of Twitter, they’d naturally be more inclined to ensure that Twitter is profitable and is kicking out high returns for all of its shareholders, as they would benefit from these increased returns as well.
Jack Dorsey Speaks Out
Dorsey, co-founder and former CEO of Twitter, had some things to say about the Board regarding their abilities or lack thereof in this thread:
Dorsey currently sits on the Board of Twitter, but his term is set to expire this coming May. Seems that he has struggled with the Board in the past but couldn’t say much:
What’s Next for Elon Musk and Twitter?
Although the Twitter Board adopted a “poison pill”, that doesn’t necessarily mean it's the end of the road for Musk’s goal of taking Twitter private.
Musk Dropped a Big Hint
Musk tweeted this on Saturday afternoon:
At first glance, this may just look like the title of one of Elvis Presley’s songs, but knowing Musk, there’s always a reason behind everything he does, and what this could hint at is a tender offer.
What’s a Tender Offer?
A tender offer is a bid to purchase some or all of shareholders’ stock in a corporation. Tender offers are typically made publicly and invite shareholders to sell their shares for a specified price and within a particular window of time. The price offered is usually at a premium to the market price and is often contingent upon a minimum or a maximum number of shares sold.
To put it simply, if the Twitter Board declines Musk’s $54.20 offer to take Twitter private, he has a backup plan.
Now there’s no way of knowing for sure if Musk plans to do a tender offer if his deal with Twitter falls through, but all signs point in this direction, putting even more pressure on the Twitter Board.
Now We Wait…
For now, we’ll wait and see what the Twitter Board decides regarding Musk’s offer. As new updates come in, we’ll update this article and/or create another article with the key details.
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