It’s not often that a company receives a takeover bid that amounts to an 18% stock premium only to see its shares fall on the news.
That’s what happened to Twitter on Thursday after Tesla CEO Elon Musk submitted a bid to buy the company for $54.20 a share, or about $43 billion. The stock dropped 1.7% to close at $45.08 for a market cap of $34 billion.
In other words, investors don’t expect the deal to happen. Analysts at Stifel went so far as to downgrade the stock to a sell on Thursday, saying the company faces a “full blown Elon circus.”
Musk has his legions of followers, to be sure, and he’s legendary in tech world for simultaneously turning Tesla and SpaceX into booming and truly innovative businesses. But years of bluster, hype and unfulfilled promises have left Wall Street skeptical of Musk’s intentions and his ability or willingness to follow through, especially when it comes to big financial deals.
Think back to “funding secured.” That was the August 2018 tweet that Musk sent, indicating that he was prepared to take Tesla private at the weed-lover’s price of $420 a share (in case that helps explain the $54.20 offer for Twitter). It’s also the tweet that led to a lawsuit from the SEC and an eventual settlement requiring a “Twitter sitter” to preapprove any of Musk’s tweets containing information about the company that could affect its stock price.
Tesla was never taken private and instead turned into one of the great stock bets of the next three years. On a split-adjusted basis, the shares are up over 1,300% since the tweet.
Musk has become fabulously rich in the process, surpassing Amazon’s Jeff Bezos as the world’s richest person. And while running his two main companies and operating some others on the side, he’s found plenty of time to be a regular rabble-rouser on Twitter, where he now has 81.7 million followers.
Twitter is Musk’s preferred form of mass communications for everything from touting crypto tokens to slamming politicians. He also continues to make proclamations about Tesla’s technology on the site. And recently, it’s been his favorite place to criticize Twitter itself, for what he sees as ignoring free speech principles and certain technological limitations.
But buying the company? Analysts don’t see it.
“While we agree with Mr. Musk’s assessment that Twitter is an under-monetized platform, we expect the Board and key shareholders to resist the offer due to philosophical differences,” wrote analysts at Mizuho Securities who have the equivalent of a hold rating on the stock. One big concern the board could have, the analysts said, is “the limited time that Mr. Musk has to focus on Twitter as he is CEO of various technology companies, including Tesla, SpaceX and The Boring Company.”
Then there’s the money. Musk is worth some $265 billion, according to Forbes, but almost all of his wealth is tied up in his equity ownership of Tesla and SpaceX. He sold over $12 billion worth of Tesla stock in late 2021, which still amounts to a fraction of the $43 billion offer price for Twitter.
Prior to the bid for Twitter, Musk had purchased 9.1% of the company’s outstanding shares this year for over $2.6 billion. The stock soared 27% on April 4, the day of Musk’s initial disclosure of material ownership.
“My offer is my best and final offer and if it is not accepted, I would need to reconsider my position as a shareholder,” Musk wrote in his proposal on Thursday to the Twitter board.
Musk said in a filing with the SEC that he hired Morgan Stanley as his financial advisor, but he made no mention of partnering with other financiers or firms that could help foot the bill. Later on Thursday, Musk acknowledged that he’s “not sure” if he’d actually be able to buy Twitter.
At the TED2022 conference in Vancouver, Musk was asked by TED’s Chris Anderson if there was a “Plan B” if the proposal was rejected. Musk responded, “There is,” but he declined to elaborate.
Anderson asked if Musk had “funding secured,” alluding to the infamous tweet about taking Tesla private.
“I have sufficient assets,” Musk said. “I can do it if possible.”
Whether or not Musk is making a truly serious effort to buy the social media company, he’s created a major distraction for the board as it now must consider the offer. The board met to discuss the bid on Thursday, and CEO Parag Agrawal reportedly told employees that the company was not being “held hostage” by Musk’s proposal.
Based on the stock price reaction, Agrawal may have investors on his side. David Trainer, CEO of stock research firm New Constructs, said the bid is a “desperate attempt for Musk to garner attention,” and not an honest effort to add value.
“He is only offering to buy Twitter because Twitter is the place where Musk is most popular,” Trainer wrote in an email on Thursday. “Elon Musk doesn’t bring any operational value to Twitter shareholders, other than his rock star status, which is not enough to transform Twitter over the long-term.”
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