After weeks of speculations, the Twitter acquisition deal is finally called off. Elon Musk blamed fake accounts and Twitter’s inability to provide more credible information. But is this the real reason behind the collapse of the deal Musk was so adamant about just a week back? Or, it’s the potential loss of billions of dollars for Musk that proved to be the final nail in the coffin of the much-talked acquisition?
Twitter has hired an elite law firm to sue Elon Musk for backing off from the deal. It’s important to note that Musk left no stone unturned to make the board agree to his demand. At the same time, people are stunned and trying to figure out the reasons behind Musk’s change of heart despite seeing “huge potential” on Twitter.
Elon Musk-Twitter Saga
To understand what went wrong with Twitter acquisition deal, we need to go back to April when Elon Musk felt that the micro-blogging platform had extraordinary potential and that he was the one who would like to unlock it. He made a “best-and-final” offer to acquire Twitter for $44 billion, offering $54.20 apiece for shares. It was a 38% premium over the day before his investment was publicly announced.
However, just two weeks before making an all-cash acquisition offer to Twitter, people were thrilled by learning that Musk already acquired a 9.2% stake in Twitter and became the largest individual stakeholder in Twitter Inc. (NYSE:TWTR). Musk then paid nearly $2.8 billion for his stake, valuing the company at nearly $30 billion.
Twitter soon realized the growing power Musk was amassing within the company. After the information related to Musk’s stake in the company was out in the public domain, Twitter was willing to have Musk as a board member as well. Experts, however, saw this as a clever move to clip the wings of Musk. In a way, the company wanted to restrict him from amassing more power which would have allowed him to have a controlling influence on the management and the board’s decisions.
Musk, an astute entrepreneur and businessman, politely turned down the offer without giving any reason. Twitter’s offer and one of his hugely popular Twitter polls convinced him to go for the full cake instead of having a chunk of the pie.
Without making much delay, within a week, Musk tabled his offer to acquire Twitter in an all-cash deal.
Musk is known to make the stock market dance on his tweets. Be it Cryptocurrency Dogecoin value or taking Tesla private, his one tweet is enough to create waves on wall street. Post Musk’s confirmation of the acquisition, Twitter was the biggest news for the stock market. As expected, Twitter’s share value, which had tumbled down 56% within a year – from $77 in Feb 2021 to $33 in March 2022 – started increasing. Trade experts had expected Twitter touching $100 within the following few days. However, in contrast to expectations, the surge couldn’t cross $51 and started showing signs of stagnation.
On the other hand, Tesla stock started falling drastically amid funding concerns related to the Twitter deal. Musk declined to disclose where the funds would be arranged to execute the all-cash Twitter deal, considering most of his fortune was tied with stocks of Tesla. Speculations started making rounds that Musk may have to sell a sizeable share of Tesla holdings, resulting in Tesla losing $126 billion in a very short span of time. Between April 04, 2022 – the time when Elon’s investment came into the public domain – and June 30, 2022, Tesla’s stock value crashed by 41%. This was a much bigger loss for the company than the whole Twitter deal size.
If all that wasn’t enough, it was the downturn of the market that jeopardise the equations for Musk.
Musk had also seen a whopping $60 billion of his wealth sheared off since he publicly disclosed his investment on Twitter (April 04, 2022).
Elon Musk was taking hits from all sides.
Meanwhile, the Twitter acquisition deal had also stuck due to a tug of war between Twitter management and Elon Musk on various issues, allowing Musk to relook his offer with a far bigger lens, apparently.
As the delay started lasting way beyond expectations – for one after another reason – traders, experts, and people started becoming skeptical about the fruition of the deal.
Twitter’s deal clearly had an adverse effect on the stock value of Tesla, as well as Twitter.
For a person who has over 100 million followers and whose tweets are powerful enough to make the global stock market dance as he wishes, it was a great setback from all corners.
Why acquire Twitter when dominate, already
Many experts believe Musk doesn’t need to acquire Twitter. By being the largest individual stakeholder Musk already has enormous power to influence decisions taken by Twitter’s management. On top of that, if Musk agrees to be a board member, he could anyways, albeit indirectly, control Twitter. For the management of Twitter, it would not be easy to ignore a person of a stature similar to Musk who also happens to be the world’s richest person.
Walking away from the deal could also be a well-calculated move by Musk. Fake accounts and information transparency could just be reasons to avoid lawsuits and penalties for abruptly calling off the deal.
But now the question arises, should Elon Musk pay the deal termination fee to Twitter?
Few experts also believe that Musk must feel happy if he can avoid all lawsuits by paying $1 billion as a deal termination fee to Twitter. By losing $1 billion, Musk would clearly avoid the unnecessary investment and prospective losses of billions of dollars.
During a time when future prospects seem bleak, the global recession is knocking on the doors, and the world’s largest economies are staring at an uncertain future, paying a whopping $44 billion for Twitter, valuing shares at $54.20 apiece, against Twitter’s current market cap of $26 billion doesn’t seem a smart move. Even if we benchmark the 38% premium that Musk offered to acquire Twitter, it would still be a loss of a whopping $8 billion considering Twitter’s share value was down to $37.30 a day before Musk decided to call off the Twitter acquisition deal.
Fake accounts on Twitter initially becoming the pressing issue for Musk and eventually becoming a deal-breaker sound not very convincing for anyone who has been dealing with M&A affairs for a few years.
It’s also weird that Twitter, which wasn’t excited about Musk’s offer initially and reluctantly had to accept the offer later, is now exploring legal options to force Musk to go for acquisition. Twitter’s management and board whose initial tweets countered and mocked Musk’s acquisition attempt, must be happy for ‘earning’ $1 billion as a deal-breaker fee and keep Musk away from having a controlling stake in the company, as they wished earlier.
But the Twitter acquisition saga is far from over. There is a lot to be written, and there are many possible options that could emerge in days to come. You must not be surprised if Musk reopens a negotiation window or offers to acquire Twitter again, albeit at a lesser valuation, or joins Twitter’s board. The court battle between Twitter and Musk will not be over anytime soon, and like many other corporate battles, it may end up getting settled outside the court.
Whatever may unfold in the future, one thing is certain – there is a lot to be seen and written in days to come.