Twitter and the poison pill
Elon Musk has bought Twitter for $44 billion USD. After announcing a 9% stake in Twitter on April 4, Elon Musk formally gave an offer on April 14. Given the chance, he aims to bring several changes to the company, most relating to what he views as free speech violations.
In a unanimous decision from the Twitter board of directors a limited duration shareholder rights plan was called into affect until April 14 of 2023. Nicknamed a poison pill, it is a method of preventing hostile takeover. With it if a shareholder reaches an equity holding of 15% or more of the company without the boards consent other shareholders can buy more shares for a discounted price, heavily diluting the stock price. This effectively forces any potential buyers to be approved by the board or else pay an extremely high price. Although at first glance it seems that Twitter was trying to prevent a complete buyout, the company had publicly stated that it is still looking at offers at that point, so it is possible that the actual intention was to pressure Elon Musk into raising his purchase offer. In the end however, Elon Musk’s tender offer was approved on April 25 by the Twitter board without any change in the offer price.
What does this mean for shareholders?
As of April 26, Twitter stock is trading at around 50 USD. Elon Musks $44 billion dollar offer comes out to $54.20 dollars per share, with majority of investors simply receiving cash payouts corresponding to their stake in the company. Assuming the trade goes through, buying stocks now can give a easy gain of roughly 9% in a short time span.
Although there is an inherent risk of the deal falling apart, according to Musk he has already secured the necessary funds needed to secure the purchase. According to him, he intends to pay with $25.5 billion USD from the banks and cover the additional costs with $21 billion USD of his own funds. Additionally, providing some level of security is a $1 billion USD termination fee that can occur if Elon Musk doesn’t come through with the buyout.
Despite opportunities for fast growth, many investors nervous that the deal may fall apart. Because of this Twitter stock has remained well below the offer of $54.20 USD, despite an early jump towards the start of April when the deal was first announced.
In separate news, the acquisition of Twitter has caused Tesla stock to drop, with shareholders concerned that with their CEO focused on the acquisition of another company, Tesla may suffer. On April 26 alone, Tesla has fell over 12% in response to the Twitter buyout being approved. Given the major reason for this most recent dip in Tesla is a time based event, Elon Musk focusing on Twitter, there is a distinct possibility in a rise in Tesla after the acquisition ends, regardless of the outcome of the buyout.
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