Did Elon Musk make cold feet? Does he feel sorry for the buyer? Or is he trying to create drama for the market, true to his public personality? Or can musk negotiate for a better price?
Musk began buying Twitter stock in January. On March 14, he announced a 9.2 percent stake in the company. On April 5, Twitter CEO Parag Agarwal announced that Musk would join Twitter’s board of directors, calling it a “welcome” move that would make Twitter “stronger in the long run.” On April 10, Agarwal announced it Mask decided against joining the board.
On April 14, Musk announced an offer to pay US $ 54.20 per share to buy the company’s entire stock. In response, on April 15, Twitter announced a shareholder rights plan, a poison pill to prevent Musk from acquiring the company.
On April 21, Musk presented a detailed plan for financing the US $ 44 billion deal. Significantly, Musk will pay US $ 21 billion of his own funds, which will come mainly from the sale of his Tesla stock holdings, and he will borrow US $ 13 billion against his Tesla holdings. Seeing a precise funding plan, Twitter’s board accepted Mask’s proposal on April 25.
Then live happily in peace?
It should have been happy for Twitter and Mask, but May 17, Mask Concerns have been raised that 20 percent of Twitter accounts are fakeThat his offer was based on the correct number of Twitter subscribers and that he would not proceed with the deal unless less than five percent of the accounts were found to be fake.
Musk’s threat made no sense, as his proposal was never about the number of customers or the economy of the contract. After all, Twitter’s revenue, cash flows, dividends or profits can’t justify a US $ 44 billion valuation.
Also, Mask never calculated the price based on the number of subscribers multiplied by the number of subscribers on Twitter. His move was primarily what he wanted Twitter to do. Or it could be a vanity purchase: acquiring a modern newspaper, as many rich people do (Jeff Bezos) The Washington Post And the owner of Rupert Murdoch The Wall Street Journal)
If Mask really believes that many Twitter accounts are fake, then why did he tweet so often? Musk has made a number of important announcements on Twitter, including his infamous tweet about taking Tesla personally.
So, what happened after his previous announcement? In my opinion, two reasons have changed Mask’s mind. First, the downturn in technology stocks, especially media stocks, means that Twitter, as an independent company, is no longer as valuable as it was in early January.
Second, Tesla shareholders were shaken by Musk’s move. They were concerned that Musk would spend his time switching to Twitter instead of focusing on electric vehicles. They must be worried about their highly indebted CEO, who is now planning to sell or mortgage Tesla shares to fulfill his personal wishes. Tesla’s stock fell to US $ 1,091 on May 17, just before Musk questioned Twitter’s subscriber base, when Twitter announced it would join Musk’s board of directors at US $ 728.
This price reduction amounts to a loss of US $ 380 billion. Musk owns about 175 million shares in Tesla, which means he personally incurred a loss of US $ 64 billion, surpassing the US $ 44 billion he planned to pay for Twitter.
Musk is a shrewd businessman and a shrewd negotiator – not just a weed smoker who becomes the richest man in the world. He probably now realizes that following Twitter is not worth it and that he will lose more than he gains from this deal.
In my opinion, he has now begun to lay the groundwork for exiting the contract.
Moving away from a signed agreement is not easy. Although the initial consolidation agreement provides for the possibility of a breakup, this can only happen under certain circumstances. In this case, the mask must pay a 1 billion termination fee.
In addition, Twitter may “specifically enforce obligations under the merger agreement,” meaning that Twitter may enforce the agreement. In fact, Twitter’s board of directors recently indicated that it intends to pursue this option, including court action.
Where do we stay from here? Twitter is trading at a 30 per cent discount on the stock mask’s offer price, meaning investors are seriously skeptical that the deal will happen. There is a long legal battle on the card. The US Securities and Exchange Commission will be more cautious in its future dealings with Mask.
Musk has already suffered financial losses, and his reputation has taken a hit. He ridiculed officials with a wave of offensive tweets.
This is a huge fall from grace for the mask, which was named in 2021 Time magazineThe best person of the year.
As far as Twitter is concerned, my advice would be to collect a US $ 1 billion termination fee from Mask and move on. Continuing a long legal battle, Twitter will lose employees and subscribers.
Let Kasturi focus on what he does best, which is to innovate through new technology. And let Twitter focus on doing its best to create a digital town square for global news and public opinion.
(Author: Anup Srivastava, Canada Research Chair and Associate Professor, Business, University of Calgary)
Statement: Anup Srivastava does not work for, consult, share or receive funds from any company or organization that would benefit from this article, nor did he disclose any relevant relationship outside of their academic appointments.
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