Let us see if Elon Musk has learnt anything. Four years ago, the Tesla chief executive loosely offered to take his electric vehicle company private, at one point misleadingly posting a tweet that he had “funding secured” for such a transaction.
This message flouted US securities law sufficiently for US regulators to require Musk’s social media activity to be preapproved by lawyers.
Musk is once again making blockbuster M&A proclamations. On Thursday, he offered to buy the 91 per cent of Twitter he does not own at an implied aggregate equity valuation of $43.4bn.
This time he has wisely communicated his intentions through legal filings.
Social questions way beyond the remit of the Securities and Exchange Commission would arise if this mercurial business titan acquires one of the most important media properties in the world.
Musk is a remarkable entrepreneur. But his hostility to vigorous moderation could result in even greater use of the site by fringe groups. This could be bad for civilised debate — and Twitter’s shaky business model.
The more pressing issue for Twitter’s board is to evaluate whether the price Musk is offering is reasonable.
Musk claims his offer of $54.20 per share in cash is his best and final. That represents a 54 per cent premium to where Twitter stock traded in January when Musk quietly started buying shares in the market. However, just 14 months ago, Twitter shares peaked at $77.
Do not expect Twitter shareholders to sell out at a price so far from its recently reached all-time high.
Another intriguing question is where Musk is going to find the cash. He spent $2.6bn buying his near-tenth of the company, averaging a price of about $36 per share. Musk’s personal wealth is estimated to exceed $200bn but that is largely tied up in Tesla stock as well as ownership of the privately held SpaceX. Musk, according to Tesla’s own disclosures, has already borrowed heavily against his Tesla shares.
Wall Street analysts forecast that Twitter will have about $1.5bn of ebitda in 2022. Even levering that six times does not even reach $10bn in cash. Twitter already has $6bn of existing debt in the form of junk and convertible bonds. Its cash balance roughly equals its gross debt at the moment.
Investment bankers have maintained that in a world awash in liquidity, sovereign wealth funds and near-trillion-dollar alternative asset managers make the equity necessary for a mega buyout feasible to raise. Those types of buttoned-up groups partnering with a loose cannon like Musk seems like a stretch.
Musk himself is hedging his bets. His securities filing said his bid is non-binding and requires the usual due diligence and negotiation of documents. The entrepreneur also cryptically announced that if his offer was not accepted, “I would need to reconsider my position as a shareholder”.
The likelihood of Musk soon owning zero per cent of Twitter is as high as him eventually owning all of the business.
