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Elon Musk’s $43 bln offer to scoop Twitter: Deal size, poison pill plan, and all you need to know

After Twitter’s second largest shareholder and world’s richest person Elon Musk made a bid to acquire the company for $43 billion last week, its board decided to swallow the bitter poison pill on Friday. Poison pill, or what is formally called shareholder rights plan in this case, is to shield themselves from unsolicited offers.

Elon Musk, Twitter
After Twitter’s second largest shareholder and world’s richest person Elon Musk made a bid to acquire the company for $43 billion last week, its board decided to swallow the bitter poison pill on Friday. (File: Reuters)

The long-Good Friday weekend was probably not as good for Twitter board members. After Twitter’s second largest shareholder and world’s richest person Elon Musk made a bid to acquire the company for $43 billion last week, its board decided to swallow the bitter poison pill on Friday. Poison pill, or what is formally called shareholder rights plan in this case, is to shield themselves from unsolicited offers. Now as a ‘Game of Thrones’ battle has been formally launched, what could follow suit could be multiple scenarios such as new bids for Twitter, a sweetened deal from Elon Musk, or Twitter eventually going private. As market watchers brace themselves for an exciting clash, here is everything you need to know about what the deal is and where it can head.

What is Elon Musk’s offer?


$43 billion. That is the amount, in cash, that Elon Musk is ready to pay for a 100 per cent stake in Twitter. According to his own admission, this offer of $54.20 per share to be paid to shareholders, represents a 54 per cent premium over the day before he began investing in Twitter, ie January 27; and a 38 per cent premium over the day before his investment was publicly announced, ie March 31. According to analysts, the offer made by Elon Musk is at a good premium and he need not revise it. Elon Musk has told Twitter’s board that his offer is the ‘best and final’ offer adding that he was ‘not playing the back-and-forth game’.

Why has Musk made the offer?

Musk, who has been an active Twitter user and has used the platform to garner more popularity, claims that he can turn around Twitter. He said Twitter does not promote free speech in its current form and that needs to be changed. Cultural theorists and commentators have accused Twitter of being left-leaning, and not promoting all voices, especially those that are right-leaning. Ire against the social media platform grew louder when it banned former US president Donald Trump days after he lost the election.

Apart from that, Twitter has been facing the challenge of stagnant user growth. Analysts have raised questions about the company’s growth plans after it reported weaker-than-expected user growth in last quarterly earnings results. Monetizable daily active users, or users who see ads, grew 13% to 217 million in the fourth quarter ended Dec 31, missing consensus estimates of 218.5 million, according to a Reuters report.

How will Musk fund the deal?

Elon Musk has a wealth of over $250 billion, according to Bloomberg Billionaire Index, making him the richest person on earth. By that standard, a $43 billion deal, about one-sixth of his wealth, is under the budget. But that’s not how it works. Musk has said the majority of the wealth he owns is through Tesla stock. What Musk can do is take a loan against his shares. According to Tesla’s company policy, a Tesla executive can take a loan amounting up to 25 per cent of the total stake they own, according to a Reuters report. This means that he could borrow up to $42.5 billion by pledging all of his shares worth $170 billion in the electric carmaker. But he already pledged over half of his Tesla shares as collateral to secure certain personal indebtedness, Reuters report added, citing a Tesla filing from last year. In the offer document to Twitter, Musk has said he has means to buy the company, but he has not elaborated how. 

Why has the board adopted a poison pill?

Companies in the United States have been using the poison pill strategy to shield themselves from unsolicited acquisition offers. Twitter’s board adopted the strategy on Friday to do the same. Formally called the shareholders rights program, if any shareholder tries to own upto or more than 15 per cent stake in the company, the program will enable the company to dilute to share and will thus flood the market with more Twitter shares. This will effectively make it more difficult to acquire the company.

What is Twitter’s current shareholding pattern? 

Vanguard Group, an asset manager, is the largest shareholder in Twitter and it owns 10.3 per cent. Elon Musk is the second largest shareholder in the Nasdaq listed firm with 9.2 per cent stake. Musk is still the largest individual shareholder. This is followed by the stake of Morgan Stanley, BlackRock, and State Street Corp which own 8.4, 6.5 and 4.5 per cent stake respectively.

Unlike rivals Alphabet Inc and Facebook, Twitter does not have a dual-class share structure. This means limited shareholders, such as the company’s founders, board and management, do not have a substantive stake in the company, hence it opens doors for rival bidders.

Can this open the way for other prospective buyers?

As Twitter’s board adopts poison pill strategy to safeguard itself from Musk’s offer or to get a sweetened offer from him, the proposed deal could soon open the doors for other acquisitive parties to launch their own bids. Tech-focused buyout company Thoma Bravo has reportedly contacted Twitter to express interest in putting together an acquisition offer that would rival Elon Musk’s bid, Reuters reported last week, citing unidentified sources.

Another possibility is that buyout firms team with Elon Musk to make a revised bit for Twitter, the Reuters report said. Private equity firm Silver Lake would be a natural partner for Musk because it offered financing for his $72-billion bid for Tesla four years ago, which Musk subsequently abandoned, the report said. Silver Lake co-chief executive Egon Durban also sits on Twitter’s board, it added.

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