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Elon Musk to Launch Twitter Takeover?

Plus500 | Tuesday 19 April 2022

The future of one of the most popular social media platforms in the world seemed unclear as Tesla (TSLA) CEO Elon Musk launched a takeover bid. Amid widespread speculation as to whether Musk’s attempt to take control of Twitter will prove successful or not, the microblogging site’s shares got a big boost over the course of the trading day yesterday.

Twitter

Musk Launches Bid

Two weeks ago, on April 4th, documents filed with the United States’ Securities and Exchange Commission (SEC) shocked market watchers from all over the world. The filing revealed that Elon Musk, Tesla’s 50-year-old CEO and cofounder, had purchased 9.2% of Twitter’s total stock, making him the social media platform’s largest shareholder. 

Reactions were mixed; many netizens expressed concerns that should Musk, one of Twitter’s most high-profile and critical users, gain more say in the firm’s business decisions, expression on the platform could become restricted. These speculations intensified the day after the aforementioned SEC filing, when Musk was officially invited to join the eleven members of Twitter’s board of directors, under the condition that he would never own more than 14.9% of the company’s total stock, and would not launch a takeover bid.

However, the following Sunday, April 10th, it was revealed that in the end the world’s richest man would not be joining Twitter’s board, thus, in principle, allowing him to attempt to purchase the company as a whole. 

It seems that this is indeed Musk’s intention. Last Thursday, he officially made an offer to purchase Twitter (TWTR) and turn it from publicly-traded into a private company for the tidy sum of $43 billion. While concern purportedly spread among the ranks of Twitter’s employees, Musk continued tweeting out perhaps farcical plans for Twitter’s future development, such as turning the firm’s headquarter offices into a homeless shelter or removing the letter W from its name. Some have even gone so far as to characterise the electric vehicle mogul’s behaviour as ‘erratic’.

Hurdles to Takeover

The relationship between Elon Musk and top Twitter executives, according to many, has become somewhat adversarial. On April 13th, Musk expressed his lack of confidence in the board’s current makeup. Unexpectedly, Twitter founder Jack Dorsey sent out a series of tweets backing this stance over the weekend, stating that a major ‘dysfunction’ that has plagued the company consistently has been ‘plots and coups’ among executive board members.

Despite this unforeseen support from Dorsey, there are a few major obstacles to Musk’s potential takeover of this premier social media platform. For one, despite his reported wealth of over a quarter trillion dollars, Musk’s liquid assets may only add up to around $3 billion. Accordingly, it would take a series of substantial financial machinations in order for him to come up with the $3 billion needed to purchase Twitter outright. This could come in the form of Musk selling off his Tesla holdings, but such a move could depress the EV pioneer’s stock value.

Furthermore, on April 8th, Twitter put into action a plan some are calling a ‘poison pill’ in order to make Musk’s path to purchase rockier. This course of action allows current Twitter shareholders to buy up more stock in the company at a discount, thus raising the total amount of Twitter shares on the market, which Musk would then have to spend more cash to purchase in order to push his takeover plan through. Many believe that the very fact that the executive board has adopted this plan reveals their lack of interest in the Tesla CEO’s takeover. With so much of Elon Musk’s considerable wealth tied up in other assets, and current Twitter employees and board members looking askance at his bid for purchase, it seems like the obstacles the world’s richest man is facing could prove to be insurmountable.

Twitter Stock’s Ups and Downs

Twitter stock has been on somewhat of a rollercoaster since Elon Musk first entered the picture a few weeks ago. The day after Musk’s initial SEC filing, Twitter shares traded up by 2% over the course of the trading day, but hit the skids over the following week.

However, yesterday Twitter was among the S&P 500’s (USA 500) best-performing stocks of the trading session, with traders pushing the firm’s shares up by more than 7.6% to $48.72. Twitter’s current stock price, however, is still below Musk’s purchase offer of $54.20 per share.

With so much up in the air regarding Twitter’s near-term trajectory, it may come as no surprise to those traders who know the lay of the land that the firm’s stock has seen several ups and downs this month. WIth Elon Musk having seemingly adopted an offensive stance toward the Twitter executive board, it remains unclear what the latter’s final decision regarding his takeover bid will be. Until then, this social media platform’s shares could be in for stormy seas.


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