Twitter Acquisition: How Elon Musk pulled it off, in style!

Twitter acquisition saga is full of turns, twists, mind-boggling strategies, taking shots at each other, and open criticism etc. From adopting the poison pill to agreeing to swallow the acquisition pill, how Twitter's board have had change of heart?

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On April 22, Elon Musk shocked the world by revealing he is ready with $46.5 billion to buy Twitter. Not many were ready to digest this, but a person of his stature had no reason to lie. The discloser not only added credibility to his bare-bones takeover offer to Twitter he made just a week before, but it also created a panic situation in Twitter’s board room.

On the other side, Twitter’s bankers tabled a report to its directors stating that Mr. Musk’s bid of $54.20-per-share was fair and that it would be an uphill task for the company to achieve that goal on its own. The findings got creditability considering the fact that Technology stocks – including the money machines such as Facebook parent Meta Platforms – were witnessing a free fall. It made Musk’s all-cash offer more appealing.

The board of Twitter gave cold shoulders to Musk’s offer as he did not disclose his strategy to finance the deal. Besides, there were only a few takers inside the board. The equations, however, were changing fast with each passing day.

Despite being skeptical Twitter representatives started exploring how Musk would finance the deal. Bret Taylor, the Salesforce Inc. chief who heads Twitter’s board, spoke to Musk on Saturday. He informed the billionaire that the full board would meet the next morning to discuss the possibility of the deal. He suggested that they speak again afterward.

Musk’s offer of $54.20 was much lower than the peak of stock value (nearly $80) of Twitter that it clocked last year. It was expected that Twitter’s board will reject Musk’s offer.

While it’s not yet clear what kind of brainstorming took place inside the boardroom, the final outcome was no less than a surprise. The board of Twitter had voted to negotiate with Musk, and advisors were negotiating a $44 billion deal. The deal was announced Monday afternoon.

Despite Twitter’s disheartening early response – including exercising the option of poison pill – Musk continued to approach the situation in his signature style: the mix of aggression, indirect warnings, and taking jabs at the board. His offer of Twitter’s acquisition in a full cash deal got surrounded by questions that he faced about his other ventures in the past:

  • From mass-producing electric cars to putting people on Mars to drilling huge tunnels for super fast transport, will he be able to do it?

But that wasn’t the only challenge Musk was about to deal with; He has tied a sizeable share of his personal wealth with the future of Twitter. In an effort to win the confidence of the board and shareholders, he has put one-third of his Tesla’s stake worth $60 billion as collateral for loans. Still, he will have to sell more shares in Tesla as needs $21 billion in additional cash.

Elon Musk already has a 9.1% stake in Twitter and has arranged a whopping $46.5 billion to execute the all-cash acquisition of Twitter.

That’s where it became interesting! Since Elon made an offer to acquire Twitter the stock price of the micro-blogging platform has been rising. On the flip side, his value of stock holding in Tesla declined as Tesla’s share price fell nearly 8% since then.

This depicts investors’ concern of Musk being distracted or being financially strained.

Twitter will have to pay interest payments of hundreds of millions of dollars annually. This could be a huge risk factor for all companies, but particularly, in this case, things are different as Musk has openly stated that he doesn’t care if Twitter makes money or not. The company, however, has struggled to do so in the past. By shifting Twitter away from content moderation (which Mr. Musk calls censorship), and in debates about online safety, he is likely to get stuck in various debates.

The return of Donald Trump on Twitter is another huge point of discussion that may soon turn into a debate once the acquisition of Twitter is completed. Musk will be asked whether to allow former President Donald Trump to return on Twitter. It’s important to note that the micro-blogging platform permanently suspended Donald Trump’s personal account after the riots that took place on January 6, 2021. Fox News reported Monday that the former president refuted all the possibilities of returning to Twitter. He would continue to use his Truth Social social media network to reach his followers instead.

Twitter Acquisition Saga

On April 4, Elon Musk, the largest individual shareholder in Twitter then, disclosed that he owned more than 9% of its stock. His regulatory filing was delayed and miscounted the shares of Twitter Inc. (NYSE:TWTR) he owns. He indicated that he would only be a passive investor. His lawyers, however, later clarified that Musk is rather seeking an active role in the company.

Sensing Musk’s claim to play an active role in the company could have a far-reaching impact, Twitter didn’t delay to offer him a seat on the board of directors, which he almost accepted. Twitter announced the following day that Musk would be joining its board. Both sides had been discussing the possibility and Twitter hoped that Musk would be silenced by doing so, given his continued criticisms of the working style of Twitter publicly.

Musk already expressed concern about the restrictions he may feel if he joins the board. Twitter, however, didn’t see it as much of an issue and both sides decided to move forward. After completing the standard procedures, including a background check on Mr. Musk, Twitter was hoping to make an official announcement of Musk joining the board on 9th April. Things started changing drastically from that day. On Saturday, April 9th, Musk surprised Twitter’s management by informing them that he was no more interested in joining the board.

Musk perhaps realized the exceptional game plan behind the offered board seat. Once a part of the board, Musk can’t buy more than 14.99% of the company.

He began to plan his next move privately: a full-fledged acquisition bid. He dropped the bomb on April 14. He tweeted “I made an offer” and included a link to a regulatory filing. His offer was not a result of a bizarre decision, there was a full thought-through strategy behind that. Immediately after turning down the board seat, Musk put his advisors to work to find out the best possible valuation of Twitter and the most lucrative offer to acquire it. His advisory team had determined that the offer should be roughly 40% higher than Twitter’s stock price, and Musk was quick to offer $54.20 apiece for Twitter shares.

Playing quite smartly, he did not disclose how the deal would be financed. It let people guess the source of the money considering that most of his fortune is held in Tesla shares and other stakes in his other companies. His team devised a unique plan to get Twitter to discount his offer, which could give him an advantage in future negotiations.

Twitter’s stock value fell that day. This was a sign that shareholders were not sure of a deal. The sentiments and wall street response to Twitter stocks were driven by the memories of his famous 2018 tweet – “funding secured” – to take Tesla private for $420 per share. The tweet cost him dear; He had to cough up $20 million in fine and also step down as the company’s chairman.

The $54.20 offer seemed a bit low to Twitter’s advisors initially. The shares fell significantly, and the company started attracting the eyeballs of various other potential acquirers, including Salesforce who once wanted to buy Twitter.

Twitter was quick to adopt a “poison pill,” a legal maneuver that made it difficult for Musk to increase his stakeholding in Twitter beyond 15%. It was a kind of panic situation which could be understood from the fact that the board approved it on a holiday with stock markets closed.

The pivotal moment came on Thursday, April 21st when Mr. Musk stated that he had secured financing from blue-chip banks, including Morgan Stanley and Barclays PLC. Musk betting on his quarter of fortune lent credibility to the bid and neutralized potential criticism by Twitter. He also clarified that his buyout offer to Twitter no longer required his team to complete due diligence. This accelerated the complete process and started paddling on a fast-track mode.

By then, Twitter’s board already sensed the mood of shareholders who found Musk’s offer the best in the current scenario which increased pressure on directors to reconsider it.

The series of tweets put out by Musk on Friday was a part of his strategy to bring the board of Twitter under immense pressure.

Musk started presenting his case directly to the top shareholders in a series of video calls. At the same time, the bankers at Twitter drew the conclusion that the company’s “go-it-alone” path could bring the Twitter stock well under $54.20 per share in the worst scenario. All of it started resulting in the change of mind of a few board members.

After Mr. Musk’s bid was made, no serious corporate suitors emerged. Perhaps they were wary of taking on the richest person in the world and are more concerned about not-so-favoring Washington’s antitrust climate. None of the suiters dared to involve in a deal that seemed difficult to execute.

By now the Twitter board realized that they have very limited options – and time as well – to explore and respond. However, one last shot they wanted to give.

On Saturday, Taylor, chairman of Twitter’s board, contacted Mr. Musk to inquire if he would make the offer even more appealing to the board members. Musk, who already said publicly that his offer was “best and final”, expressed his inability to sweeten the offer as he had a reputation to protect. He also indirectly indicated that if the board rejects his offer, he will be left with no other option but to reach out directly to shareholders. Taylor understood the message wrapped in nice words as it was something Musk had previously suggested publicly via cryptic tweets.

Depending on Twitter’s board decision on whether to reopen negotiations or not, the pair agreed to meet again on Sunday. However, Musk once again opted for the strategy of pressure and insisted that he was keen to close the Twitter acquisition deal by Monday.

As anticipated, Musk’s strategy to show a sign of urgency worked, and instead of focusing on taking chance by putting the ball in Musk’s court with a revised offer, Twitter’s board focused on protecting shareholders in the event of collapse due to any reason. This was due to Musk’s unpredictable behavior and his not-so-warm relations with regulators.

Both sides’ advisors burnt their midnight oil to finish up the deal by Monday morning. Any hopes for a pre-market announcement soon faded. Instead, the official announcement came in the middle of the trading day, which is rare for a deal of this size involving the world’s richest person and drawing unprecedented attention from the business world.

Musk’s fans are celebrating but it was the perfect ending to an unusual deal. Musk didn’t “acquire” Twitter, he “shopped”. It’s very rare that a listed company was identified, offered, negotiated, and bought within just two weeks. Throughout the two-week-long takeover battle, Musk made the most of Twitter to criticize it on its platform. He didn’t shy away from giving a glimpse of the Twitter he envisions. Be it pursuing unrestricted content guidelines or taking it private or even opening the source code, Musk has been vocal about his plans to make a mockery of Twitter’s bankers and U.S. securities regulators. He didn’t spare Bill Gates, Justin Bieber, and other billionaires too who he criticized for their infrequent tweeting and blamed that for the platform’s shortcomings.

According to people who were present, Parag Agrawal, Twitter CEO, assured employees about no planned layoffs and that the company’s priorities haven’t changed since the closing of the deal. However, his own existence in the company is at stake and under the shadow. However, he also didn’t leave a chance to take a shot at Musk when asked about the possible return of Donald Trump on Twitter. His reply “we don’t know where the company will go once Mr. Musk has taken over”, is widely picked up by various media houses who have decoded the real meaning in their own style.

The acquisition of Twitter is expected to complete in the second half of 2022. And the biggest challenge for Musk is keeping his mind silent and fingers restricted when on Twitter. In past, he paid a huge price for his tweets which rubbed the regulators on the wrong side. His not-so-warm relationship with regulators is well known, and knowing how desperate Musk was for Twitter, regulators won’t leave any chance to make his happiness short-lived.

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