Back on April 25 the board of directors of social media giant Twitter Inc. reached a surprise agreement to sell the company to serial entrepreneur and physicist Elon Musk, capping a month or so of rather public back-and-forth, often in the form of, what else, tweets.
Musk had earlier bought around nine per cent of Twitter’s shares to become one of its largest shareholders. He initially sought a seat on the Twitter board, ostensibly to bring about certain changes to the platform he said he felt were needed, but that didn’t occur.
On April 28 Twitter released what may well be its last public quarterly numbers. Should Musk’s deal to take Twitter private be realized, there will no longer be a requirement for public release of company performance coupled with guidance for expectations over the coming quarters.
Those numbers showed that a key metric, daily average users, stood at around 224 million. However, with the Twitter share price down markedly over the past year, Musk’s US$54.20 a share for the company was likely well above what any other offer might be.
Certainly no white knight came forward following Musk’s offer. The board had little choice but to act on the offer, seen by some as a hostile takeover, and to negotiate with Musk. Despite the deal that was reached, Twitter’s share price, although up slightly based on its performance metrics, is nowhere near Musk’s offer point. This suggests skepticism in the broader market that the deal will in fact be consummated.
That Musk could line up funds to purchase Twitter in its entirety was never really in doubt. Famously the world’s richest man, with founder stakes in electric car maker Tesla, rocket launching company SpaceX, Neuralink, and The Boring Company, Musk’s acquisition of Twitter looks relatively small-scale.
How Twitter will look under Musk’s control, if indeed it happens, remains to be seen. According to some reports, top Twitter lawyer Vijaya Gadde, tasked with oversight of the company’s policy and legal teams and with handling issues such as dangerous speech and harassment, became quite emotional in a speech to staff following the takeover agreement.
As stated in a securities filing, Musk is required to temper his negative pronouncements, presumably during the takeover phase. “The equity investor shall be permitted to issue tweets about the merger or the transactions contemplated hereby so long as such tweets do not disparage the company or any of its representatives,” notes the filing. Just a day or so after the filing it seemed that Musk was already testing the boundaries of that condition with tweets to his 80 million-plus followers.
Both parties agreed to a breakup fee of a billion dollars, not uncommon in these sorts of acquisitions. Essentially each side agrees to pay the other party a fee should the deal not proceed. Should, for example, Musk’s funding arrangement fall apart, he’d pay Twitter the breakup fee.
At that US$54.20-a-share offer, the Twitter purchase would run to about $44 billion. Canadian banks CIBC and RBC are among those involved in the financing package. About $21 billion is coming from Musk, perhaps in the form of Tesla shares.
A complicating factor is that Tesla stock fell significantly as news of the potential Twitter sale broke. That could even scuttle the deal. The bulk of Musk’s immense wealth, estimated by Bloomberg at US$273 billion, is based on his holdings in the Tesla venture. Whether he will fund the takeover through sale of Tesla stock, or through sale of his cryptocurrency holdings (he has publicly stated he holds Bitcoin, Ether, and Dogecoin) is not known at this point.
After selling two large blocks of Tesla stock, worth around $8 billion, Musk tweeted that he was finished on that front. That stabilized the drop-off in the car maker’s share price, but the market remains concerned, perhaps because Musk’s attention will now be split even more with the Twitter addition.
Musk is a creative thinker. No one will deny that. But at the same time he is unpredictable, perhaps, some would say, even erratic. Musk says he is a free speech absolutist, which had already put him on a collision course with Twitter management.
Here’s Musk’s tweet following the takeover agreement reached with Twitter’s board of directors.
“Free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated.”
“I also want to make Twitter better than ever by enhancing the product with new features, making the algorithms open source to increase trust, defeating the spam bots, and authenticating all humans. Twitter has tremendous potential – I look forward to working with the company and the community of users to unlock it.”
Twitter, of course, has banned some users for violating its terms of service. Simply shutting down any Twitter moderation may render the service unusable. Hate speech, spam bots, and pornography might potentially become overwhelming in a completely free-form Twitter world.
Will former U.S. president Donald Trump return after his account was suspended for tweets deemed to have glorified violence following the January 6, 2021, Capitol Hill riots? Trump himself has said he won’t, preferring to focus on his own social media platform. Given the lack of uptake on that platform, Trump may well seek to return to Twitter.
Will Twitter actually become an “anything goes” service under Musk’s ownership? Probably not. Irrespective of Musk’s eventual ownership of Twitter, should the deal close later this year, it is possible that all the large social media platforms will face some form of government regulation.
Recognizing that Musk’s potential takeover of Twitter is not sitting well with some employees, the company has locked down its platform to coding changes, perhaps acknowledging a fear of sabotage.
For now, stay tuned for additional developments! The final chapter in this saga is yet to be written.
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