If the deal does not fail, the company will become private and will no longer be traded on the stock exchange
TwitterTWTR51,95 $
Tesla and SpaceX CEO Elon Musk has signed a definitive deal with Twitter's board of directors to buy the company for $44 billion..
The deal is expected to close by the end of 2022.. Investors will receive 54.2 $ for each paper - this is 38% more, what the shares were worth at the close of trading 1 April, when Musk announced the acquisition 9,2% Twitter shares.
Musk hasn't bought the company yet. The deal must be approved by US shareholders and regulators.. Analysts do not expect the deal to collapse. Twitter's independent chairman Bret Taylor called the sale of the company to Musk "the best decision for shareholders".
Twitter founder Jack Dorsey supported the purchase of the company by Musk. According to him, "getting" the company "off Wall Street is the right first step".
Twitter's board of directors didn't immediately agree to Musk's proposal
The entrepreneur offered to buy the company 14 April to 54,2 $ per share - 18,2% above the price of securities at the close of previous trading. He called his proposal "the best and final".
After that, the board of directors of Twitter decided to apply the tactics of the "poisoned pill". This allows shareholders to purchase additional shares at a deep discount., blurring the share of a potential buyer.
The Wall Street Journal writes, that the board of directors agreed to negotiations after, how Musk revealed the financing scheme of the transaction. In a statement to the Securities and Exchange Commission, he said, that received 46.5 billion dollars.
Where did Musk get the money to buy Twitter?
Musk will pay $21 billion of his own money as equity capital. The remaining 25.5 billion was allocated to him by a group of banks led by Morgan Stanley secured by Tesla shares..
Musk originally valued the company at $43 billion.. Now the value of the deal has increased to $44 billion.. This may be due to the updated number of shares.
If the deal is closed, this would be one of the largest leveraged buyouts in history.
How profitable is Musk's proposal for shareholders?
Musk offered to buy shares of Twitter on 54,2 $. It's on 20% higher than the price of 14 April, that is, before Musk's proposal, — 45,1 $. But it is also 30% below the historical maximum in 77,1 $. This deal does not look good for the company's shareholders., But only at first glance.
To 1 April, when did the first news about Musk's interest in the social network appear, TWTR shares fell 40% in a year. And there are reasons, on which they could be cheaper further.
The last two times Twitter reported worse than analysts' expectations. So, in the third quarter of 2021, the company reported a loss per share of 0,54 $, while analysts expected earnings in 0,17 $. In the fourth quarter, the social network reported a profit of 0,33 $, which is below expectations, albeit slightly. In both cases, the company's revenue also fell short of the consensus forecast..
For the first quarter of 2022, Twitter will report before the market opens on Thursday, 28 April. Maybe, the company's results should again upset investors and management decided to accept Musk's offer just before the report.
And Twitter also has a reason for a bad report.. Possible recession and disruptions in the supply chain of various products are forcing advertisers to limit marketing spending. Many sites have been talking about this in recent months., who make money from advertising.
For example, social network Snap. 21 April, she reported worse than expected. The company's executives explained the poor results by "macroeconomic factors". It's a logistical glitch, labour shortage, inflation and rising interest rates. These same factors affect Twitter.
It wasn't just corporate issues that forced Twitter executives to agree to Musk's proposal., but also a general bearish trend in the market. So, five months index Nasdaq fell from the maximum 20%. Probably, many tech companies like Twitter won't soon rewrite their all-time highs., because the Fed has only just begun to tighten monetary policy.
In this regard, Musk's proposal does not look so disadvantageous for Twitter shareholders..
How Twitter can change under Musk
According to Musk, he's going to "make Twitter better, than before". He called the social network a "digital city square", where vital issues of the future of humanity are discussed.
“Freedom of speech is the basis of democracy, and Twitter is the digital square, where topics are discussed, vital for the future of mankind".
Twitter CEO Parag Agrawal told employees at a general meeting, that the future of Twitter is uncertain. "We do not know, in which direction will the company move after, how the transaction will be closed», he said.
Musk has not yet revealed plans for managing the company.. He promised to keep so many shareholders, as far as the law on private companies allows. But not yet known, what will look like the composition of the owners of the company or the future board of directors.
The entrepreneur also did not tell, how he will combine managing Twitter with working at his other companies: SpaceX, Tesla, Boring и Neuralink.
Musk's past statements suggest, what changes await Twitter:
- open source. Musk said, that publishing algorithms on GitHub will allow users to see, how publications are promoted on the platform. According to the entrepreneur, this will prevent "behind-the-scenes manipulation";
- less content moderation. According to Musk, now content moderation is not a serious problem. But he repeatedly stated, that moderators interfere with freedom of speech;
- fight against bots. Musk promised to defeat spambots - or die, trying to do it;
- more relevant content. Musk pointed out, that some of the most popular accounts no longer post content at all.
