Elon Musk’s second U-turn about the deal, which occurred with only around two weeks left before a court case over his attempts to revoke his US$44 billion (£39 billion) offer to acquire Twitter, demonstrates that the world’s richest man is still capable of surprising people.
It is not a great surprise that he just decided to revive the offer to buy the social media site for US$54.20 per share; there was widespread speculation that he would lose the case. However, it is unexpected that he has chosen to stick with the sum he initially proposed in April rather than attempting to negotiate a lesser amount.
Reviving shareholder interest in the acquisition could undoubtedly put pressure on the Twitter board to accept less in order to close the deal if this is just another stalling ploy to raise expenses and postpone any conclusion. The more plausible explanation for this apparent capitulation, though, is that Musk was losing hope that the court fight would end favourably.
The scheduled legal hearings have now been postponed by a US court to give Musk more time to collect the money needed to purchase Twitter. However, the capricious Musk might still have some tricks up his sleeve. Therefore, it is yet unknown how, when, or even if the deal will ultimately close.
Musk first realised it would be difficult for even the richest person in the world to scrounge together US$44 billion. Although he finally used this strategy, Musk’s majority of his wealth is invested in Tesla stock, and selling some of that may have caused a fall in the company’s share price. In truth, he has had to take out loans at very high costs from a number of sources while pledging Tesla shares as collateral.
The decline in the value of technology shares since the agreement was finalised has been another surprise. Over the previous year, the major index for internet equities, NASDAQ, has dropped by 31%, with a particularly dramatic decline occurring in the months following Musk’s bid for Twitter.
In any case, some thought the industry was overvalued. High interest rates and inflation have driven up expenses for computer firms while decreasing demand for their goods and services. Lower demand results in lower advertising income, which is Twitter’s primary funding source.
Twitter’s stock market valuation has dropped to US$32 billion since the deal was finalised, although even that figure is supported by expectations of working out a favourable resolution with Musk. The legal action the Twitter board launched was intended to either force the sale’s implementation or compensate the shareholders for the US$12 billion loss resulting from the disparity between the sale price’s promise and actual valuation.
For Musk, this is not a significant sum of money, but he was prepared to challenge the agreement in court and on appeal. Even though legal disputes might be motivated by pride rather than money, in the case of Twitter shareholders, this is likely motivated by money because a sale of the company for US$44 billion would be a big win given the current state of the economy.
This is almost probably the reason why the Twitter board has worked so hard to push the deal through, despite the possibility that it would lead to their members being dismissed and replaced by a team picked by Musk, or at the at least, seeing their salaries drastically reduced.
In the great majority of hostile takeovers, the target increases its profit estimates and provides shareholders with higher dividend payments in an effort to sway them to reject the acquisition and continue with the current leadership. A plausible defence at the very least demands a higher price be paid in order to benefit shareholders. In this instance, the initial agreement was so fantastic that the board leapt on it even though Musk was obviously beginning to change his mind.
In fact, it’s far tougher to determine how this acquisition would benefit Musk, even though shareholder value is evident. The main reason for this is that it’s not evident how he might save Twitter. He mentioned making the agreement into a “mega app” while announcing its restart.
Users would be able to carry out a number of tasks on such a platform, including sending messages and making payments.
Users would have to trust Twitter with their data for this to work, though. Giving a lot of data to another app is less enticing for many users due to their worries about how the information will be utilised.
The other problem is that several apps already exist that accomplish these tasks well, like Apple Pay, Facebook Messenger, WhatsApp, and PayPal. Twitter would enter these markets after they had already become consolidated.
Musk’s earlier proposal to use a membership model on Twitter likewise doesn’t seem particularly compelling. Due to this year’s significant price increase, consumers have been cancelling all kinds of subscriptions.
Instead, in order to try to enhance Twitter’s performance in the current economic climate, Musk may need to make expense reductions. Employees will suffer as a result, and Musk and his group of lenders might continue to lose money unless they have a solid plan in place to turn around the social media platform’s financial situation.
With the most recent information about its revival, the prospects for the deal have improved. But most agreements fail because the parties cannot agree on anything throughout the negotiation process, and we have already witnessed a disagreement between the two primary parties. In actuality, a transaction is not complete until the last paperwork is signed and the money is exchanged. That is possibly the key takeaway from this tale for anyone selling a company.
