Highlights:

  • Elon Musk offered to buy Twitter at $43 billion compared to its $37 billion valuation.
  • Elon is looking to buy Twitter as he is an active Twitter user and believes in its potential to promote free speech
  • Elon feels the company needs to be taken private to ensure all the changes he envisions for the company can be fulfilled
  • Twitter is an important platform for Tesla marketing, helping save millions of dollars
  • Possibility of hostile takeover and what it means
  • Twitter's response and plan to implement the poison pill strategy to defend against the possibility of a hostile takeover

Billionaire entrepreneur Elon Musk recently made an offer to buy 100% of Twitter for $43 billion. Twitter's current market valuation stands at about $37 billion. He has offered to buy the shares at $54.20 per share which is a 38% premium from the share price on April 1 and a 54% premium from the price before he started investing in Twitter. Elon had been the largest individual shareholder in Twitter with a 9.2% stake in the company.

So why is Elon interested in buying Twitter?

  • Elon is an active user of Twitter with a following of more than 80 million and believes in the power the platform holds in promoting free speech around the globe, which is why he started investing in the company.  Musk said that he realized since making his investments that Twitter in its current form would neither thrive nor serve its purpose as a tool for free speech  and hence needs to be transformed into a private company. He even went on to say that if his offer is not accepted, he will need to rethink his position as a shareholder.
  • Elon shared his reservations against the company's management's vision for the company and suggested that he could not drive the changes he has envisioned for the company if it remains public.
  • Since Elon is active on Twitter, he uses it regularly to promote and market his brands such as Tesla and SpaceX. As per an article in 2021 (Link to Article), Tesla spent $0 on marketing. Given Elon's 80 million following on Twitter and his active use to promote Tesla, there is always a looming threat of his account being banned for some reason by Twitter which can cause distress to Tesla's marketing. That would cause Tesla to undertake its own marketing and thus increase its expenses, which would, in turn, reduce the capital it can employ in R&D, which is its biggest competitive differentiator. Thus, owning Twitter eliminates this risk entirely.

Can Elon acquire Twitter even if Twitter rejects his offer?

This is where we need to understand what a hostile takeover is. It refers to a company being acquired against its wishes. There are a few ways in which this can be done:

  1. The party wanting to take over can start buying the company's stocks from the open market and increase their stake to more than 50% making them the majority shareholder of the company. But this comes at a cost since the stock prices start rallying up and can be an expensive affair for the party opting for this.
  2. The acquirer can also directly reach out to the current shareholders of the company or fight to replace management to get the acquisition approved.

What is Twitter's response to the offer?

Twitter confirmed that it received the offer from Elon Musk and was going through it. Recently, they revealed a plan to implement a poison pill strategy.

Poison Pill is a strategy adopted by a company that allows existing shareholders the right to purchase additional shares at a discount, effectively diluting the ownership interest of the hostile party. Therefore, Twitter is unlikely to accept Elon's offer and is trying to prevent any hostile takeover attempt.

Whether Elon will succeed in acquiring Twitter or not, only time will tell.