What you need to know about Elon Musk's US$44 billion Twitter deal

ELON Musk reached an agreement to buy Twitter at his initial offer price of US$54.20 a share in cash in a transaction valued at about US$44 billion - three weeks after he secured more than 9 per cent of the San Francisco company, and barely two weeks after Twitter’s board adopted an anti-takeover provision known as a “poison pill”. 

Musk, the chief executive of electric-car maker Tesla with more than 83 million followers on Twitter, initially made the offer to buy the San Francisco company on April 14, and take it private. But the offer was rejected. It was only after Musk obtained financing commitments from investment bank Morgan Stanley and other lenders that Twitter’s board seriously considered his offer. 

Musk, who is also the chief of SpaceX, managed to secure US$25.5 billion of committed debt and other financing secured by his Tesla stocks. He has also committed to provide equity of nearly US$21 billion. 

BT takes a look at what will happen next. 

What shareholders will get:

Twitter stockholders will receive US$54.20 in cash for each share of Twitter common stock that they own at the closing of the proposed transaction. The offer price represents a 38 per cent premium to Twitter's closing stock price on April 1, 2022, the last trading day before Musk revealed his more than 9 per cent stake in the San Francisco company. On completion of the transaction, Twitter will become a privately held company.

Twitter shares rose 5.7 per cent on Monday to close at US$51.70, compared to its initial public offer (IPO) price at US$26 a share back in Nov 2013. The stock has been a laggard compared to the tech-driven Nasdaq, which has more than tripled since, as Twitter struggles to consistently post profits, unlike dominant forces in digital advertising - Google and Facebook.

Twitter under Musk:

The Tesla’s boss said he wants to make Twitter better than ever by enhancing the product with new features. He floated the idea of an edit button in a Twitter poll on April 4, and a majority of the 4 million plus voters supported the idea. He also wants to make Twitter’s algorithms open source to increase trust, defeat spam bots that send overwhelming amounts of unwanted tweets, and authenticate all humans.  

He went on to add that 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". Political conservatives hope that a Musk regime would mean less moderation and reinstatement of banned individuals including former US President Donald Trump back onto the social media platform. 

When will deal close?

The transaction, which has been unanimously approved by the Twitter’s board of directors, is expected to close sometime this year, subject to the approval of Twitter stockholders and regulators, as well as the satisfaction of other customary closing conditions. 

A company can elect to hold a shareholder vote at any time, even before regulators have finished reviewing a proposed takeover. 

Last year, Twitter generated US$5 billion in revenue, with US$2.8 billion from the US and the rest overseas. The Federal Trade Commission in the US and the European Commission in the EU are among regulatory agencies that may review the proposed Twitter buyout.

What analysts are saying:

Regardless of Twitter’s upcoming Q1 earnings report (street estimates 5 US cents earnings per share and US$1.23 billion in revenue) most expect to be dismal, analysts reckoned the deal will go through.

Angelo Zino, tech analyst at CFRA, said Musk is acquiring Twitter, not from a financial perspective: ”He’s going to do what he wants with it and he’s probably going to look to make significant changes to the business model of the company.”

As Twitter is a social media platform, no regulatory hurdles are expected. Wedbush analyst Daniel Ives wrote in a research note: “We do not expect any major regulatory hurdles to the deal getting done as this soap opera now ends with Musk owning Twitter.”

In his recent note, Stifel analyst Mark Kelley downgraded Twitter stock to a sell. He said Musk’s move to buy Twitter “sets a near-term ceiling on shares, detaches the company from fundamentals, and offers significant downside risk,” especially if the Tesla CEO “decides to abandon his offer or sell down his stake”.

Morningstar analysts said Musk's offer is slightly below its US$58 fair value estimate but 18 per cent above the FactSet consensus price target of US$46: "We expect Musk to face some scrutiny in the media and from regulators regarding his plans to significantly ease content moderation on the platform," they said.

What it means for Asia, notably China?

Some observers, including Amazon’s boss Jeff Bezos, have voiced concerns that Twitter under Musk - who has vowed to make Twitter a bastion of free speech - may give Beijing some leverage to use the app to promote its agenda. China is Tesla’s second largest market in 2021 and Chinese battery makers are its major suppliers. 

Bezos, the world’s second richest man after Musk, later backtracked and said: “My own answer to this question is probably not. The more likely outcome in this regard is complexity in China for Tesla, rather than censorship at Twitter.”

Twitter -- like most American social media platforms -- is banned in China, which sees them as providing critics a global platform from which they lambast Beijing.