Updated: May 30
Elon Musk became the new owner of Twitter on Monday after completing its acquisition of the social media platform for $44 billion. The move ended a vacillated process between a done deal and a dead-end for the past three weeks.
"Free expression is the foundation of a functioning democracy, and Twitter is the digital marketplace where issues important to the future of humanity are discussed," Musk said in a press release announcing the news. Twitter's independent board chairman, Bret Taylor, called the deal "the best way forward" for the company's shareholders.
The result ends long-running speculation about Musk's financial stake in Twitter. On 4 April, the entrepreneur's 9.2 per cent stake in the company - or 73.5 million shares at a price of around $2.4 billion - was announced to the public. At the time, the purchase of Twitter shares was combined with an offer to sit on the company's board. On 10 April, however, Musk declined to take his seat.
He soon made it clear that he wanted the whole thing. On 14 April, Musk offered to buy the remaining stake in the company for $54.20 per share - a 38 per cent premium over the price he paid for his original investment.
Musk's accompanying letter to Twitter's CEO contained sharp criticism of the platform. "I believe in [Twitter's] potential to be a platform for free expression worldwide, and I believe that free expression is a social imperative for a functioning democracy," he wrote. However, he added: "It is now clear to me that the company in its current form will neither thrive nor serve this social imperative."
Instead, he wanted to privatise the company, offering $44 billion for it in a "best and final" bid. Analysts were divided on the likelihood that Musk's offer would succeed and whether it represented good value. While it was in the middle of the usual 30 to 40 per cent premium to the stock price, the share price had only reached a deal far above that in the past year. For its part, Twitter's board said it would consider the offer.
"It sets a precedent for activists who want to attack a company," said Timothy Galpin, a lecturer in strategy and innovation at Oxford University's Said Business School. "Carl Icahn and a few others have already done that, but it's not as common to take on the whole company."
"This is not a way to make money," he explained. "My intuitive solid feeling is that it's essential to have a public platform with the highest level of trust and inclusive of all people. That gave pause to some within Twitter and those holding large stakes in the forum.
Contemporary reports suggested Twitter would push back against Musk as the Tesla and Space X CEO got into a Twitter dispute over press freedom with Saudi Arabia's Kingdom Holding Company, a significant shareholder that said it would reject Musk's bid. (Saudi Arabia is accused of the murder of journalist Jamal Khashoggi).
Such social media battles may be unusual for a significant company takeover, but Musk is unique, says Cary Cooper, an economics professor at Manchester Business School. "He's not a traditional businessman," he says. "He is a man who is very creative and very innovative. He's a unique guy and does things in a way that a normal business person would not do. He does not play the normal games that an entrepreneur would play."
On 15 April, Twitter's board deployed a financial emergency tool: the poison pill. The poison pill, also known as a temporary shareholder rights plan, asked shareholders to increase their investment in Twitter to reduce Musk's ability to grow his stake to a controlling interest. In any attempt to increase his stake to over 15 per cent, Musk had to negotiate with Twitter's board.
Triggering the poison pill prevented the quick hostile takeover, but Musk's offer was never off the table. On 21 April, Musk outlined how he planned to raise the $44 billion in cash to match his offer.
Morgan Stanley and other companies offered to back Musk's bid while he would pay around $21 billion from his estimated $263 billion fortune. The filing put meat on the bones of the previously speculative offer - and showed how serious Musk was about taking Twitter private.
The confirmed funding reportedly prompted some Twitter shareholders, who had been somewhat hostile to Musk, to ask the company to hear him out. Meetings were reportedly held over the weekend, and Twitter's board met on 25 April to recommend the deal to shareholders. It was a swift and surprising turnaround.
"On Friday, there was so much scepticism and cynicism, and now it almost looks like the deal is sealed," says Vasant Dhar, a professor of information systems at NYU Stern. Musk's quick action has left other potential bidders playing catch-up. But the deal seems to have passed the money test, at least for Twitter's board, because "the board's fiduciary responsibility is to get the most value for shareholders," says Galpin. "Of course, there is the question of what he will do with the company when he takes control of it. He has to do more than add an edit button.
Taking the company private would allow Musk to make the changes he wants quickly without answering the public markets. "I also want to make Twitter better than ever by adding new features to the product, making the algorithms open source to increase trust, defeat spam bots, and authenticate all people," Musk wrote in Monday's press release.
"I think he did it brilliantly," Dhar said. "You might have expected the reaction: 'Musk is a megalomaniac and is only doing this to make his mark'. But I think there's much more to it than that."
The authorities may scrutinise the purchase. While it is unlikely that there will be antitrust concerns, the Securities and Exchange Commission could still take issue with Musk's disclosures.
"They could ask a court to enjoin the transaction because he did not file properly," Pritchard says. "He did not file his first investment on time; then he filed the wrong form because he intended to influence management all along," he suggests.
But this would require proving the damage caused by these breaches. Shareholders could file private lawsuits but would probably only succeed in getting Musk more money for the deal. And it is unlikely that SEC will stop the transaction because of the damage it could do to shareholders.
It seems that Elon Musk will almost inevitably take control and ownership of Twitter - changing the face of the platform. For some of Twitter's millions of users, this is a welcome development, giving them more freedom to say and do what they want. For others, it is a worrying development with potentially chilling consequences. For shareholders and Musk himself, it looks rosy.
"Shareholders will feel they have won; Musk has got what he wanted," says Galpin. "He has control of the company, not at an exorbitant price, but not at a low price. Nobody screwed the other guy over, and nobody lost.
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