Musk Offers $43B For Twitter To Create ‘Arena For Free Speech’

On April 14, billionaire entrepreneur Elon Musk aimed Twitter Inc (TWTR.N) at a staggering $43 billion cash takeover offer. He made this move by saying that the social media company needs to be taken private to grow and become a platform for free speech.

At a TED Talk in Vancouver, when asked to explain why he made the bid, Musk said:

“I think it’s very important for there to be an inclusive arena for free speech.”

Musk – who is already the San Francisco-based company’s second-largest shareholder made the now-famous bid in a letter to Twitter’s board on April 13. On Thursday, the offer was made public in a regulatory filing.

He told the TED Talk audience that he was not even sure whether he could acquire Twitter. But, he added that he has enough assets to make that purchase. Musk added:

“Having a public platform that is massively trusted, and broadly inclusive is extremely important to the future of civilization.”

In comparison to Twitter’s April 1 close, the last trading day before his 9.1% stake in the social media platform was made public, his offer price of $54.20 per share represented a 38% premium.

After disclosing his stake, Musk – the world’s richest person with a $273.6 billion fortune according to a Forbes tally recently – rejected an invitation to join Twitter’s board this week, a move the analysts said indicated that his takeover plans as a board seat would have restricted his shareholding to just under 15%.

Investors were not immediately reassured. In the afternoon trading, the Twitter shares were trading nearly flat. Some argued that the micro-blogging platform that has become a global means of communication for world leaders and individuals was undervalued by Musk’s bid.

From his verified account, Alwaleed bin Talal Saudi Arabia’s prince tweeted about the deal. He said Musk’s offer undervalued the company and he rejected it, describing himself as one of the “largest & long-term shareholders of Twitter”.

For his part, Musk said he would not reconsider his investment if the board rejects it and told Twitter it was his “best and final offer”.

In his letter to Twitter Chairman Bret Taylor, Musk said:

“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.”

Musk, a self-described “free speech absolutist,” recently ran a poll on Twitter asking users if they think it adheres to the principle of free speech and he has been critical of the social media platform and its policies.

Following the ban on former President Donald Trump by Twitter over concerns around incitement of violence following last year’s U.S. Capitol attack by his supporters, Musk tweeted:

“A lot of people are going to be super unhappy with West Coast high tech as the de facto arbiter of free speech.”

Before Musk’s announcement, Trump said in an interview with Sirius XM’s Americano Media on Wednesday that he “probably wouldn’t have any interest” in returning to Twitter, where he had more than 88 million followers.

Saying that market regulators operate independently from political leadership, Karine Jean-Pierre White House spokesperson declined to comment on Musk’s offer for Twitter.

To discuss the news, company employees, some of whom were frightened over Musk’s impact on its ability to moderate content, were expected to attend a Twitter all-hands meeting later on Thursday, one source told Reuters.

With the advice from Wilson Sonsini Goodrich & Rosati and Goldman Sachs, Twitter will review the offer, according to an anonymous source familiar with the matter. The U.S. investment bank Morgan Stanley acted as Musk’s financial adviser for his offer. In case of this transaction proceeds successfully, Musk is yet to explain how he will finance it.

Angelo Zino, a CFRA Research analyst said:

“We think Musk could look to fund the transaction, if approved, through a combination of debt financing and potentially Tesla shares. Given the size of the transaction (about $43B), we think it is conceivable that some Tesla shares could be sold given much of his wealth is tied to the company.”

Late last year, Musk sold about 10% of his stake in the electric vehicle maker Tesla to settle a tax obligation. That transaction involved over $15 billion worth of his Tesla (TSLA.O) shares.

Twitter Is A ‘Serial Underperformer’

While it seeks big projects such as newsletters and audio chat rooms, Twitter’s lower-than-expected user additions in recent months have raised doubts about its growth prospects.

Chief market analyst at CMC Markets, Michael Hewson said:

“The big question for the Twitter board now is whether to accept a very generous offer for a business that has been a serial underperformer and tends to treat its users with indifference.”

According to a source familiar with the matter, Twitter will not decide on the fate of Musk’s bid on Thursday. The source said that the board is discussing the parameters of the valuation process and it would then request its advisers to evaluate the bid and await the results.

Since joining Twitter in 2009, Musk has used it to make several announcements, including teasing a go-private deal for Tesla that landed him in hot water with regulators and he has amassed more than 80 million followers.

A 2018 settlement with the U.S. Securities and Exchange Commission binds Musk, requiring him to get pre-approval on some of his Twitter posts after he tweeted that he had “funding secured” to take Tesla private.

Howard Fischer, a partner at law firm Moses & Singer and former senior trial counsel at the U.S. Securities and Exchange Commission (SEC) said:

“If he wants to take Twitter private his past run-ins with regulators might not pose an obstacle – but it might make potential financing sources leery of providing the cash for the deal – unless he is willing to pledge a large portion of his Tesla holdings to collateralize the debt.”

Furthermore, the move by Musk raises the question of whether more bidders might emerge for Twitter.

In a client note, Wedbush Securities analyst Daniel Ives wrote:

“It would be hard for any other bidders/consortium to emerge and the Twitter board will be forced likely to accept this bid and/or run an active process to sell Twitter.”