Only 12 days ago, several of Wall Street’s and Silicon Valley’s most experienced operators privately rejected Elon Musk’s attempt to acquire Twitter for US$ 44 billion as a joke.
On Monday, however, the world’s richest man pulled off a surprising success, getting overwhelming board backing for his takeover plan after putting his own wealth on the line to backstop $33 billion of the deal’s funding.
One banker who has managed many hostile acquisitions in Silicon Valley described the process as “pretty prosaic,” with Twitter’s board of directors succumbing to an offer that some of the company’s largest shareholders pushed them to accept.
Doubts
Musk’s motives were widely questioned following the surprising announcement of his takeover bid on April 14th, only days after he indicated he intended to be nothing more than a passive investor in the firm.
“I don’t think he was serious at first,” said Roger McNamee, a long-time Silicon Valley investor. Musk’s approach was usually hurried, McNamee said, because he did not have money in place or a clear strategy for what he would do if he acquired the firm, other than vague claims about free speech.
The recollection of Musk’s notorious “funding secured” tweet in 2018, when he declared he had a contract to take his electric vehicle business Tesla private but was later charged by the US with securities fraud for deceiving the market, added to the incredulity.
Initially, Musk’s advisers’ quest for private equity investors to give financial strength threatened to stall his momentum, as several of the larger companies ruled themselves out, according to those engaged in those negotiations.
Twitter’s board’s adoption of a so-called poison pill defence looked to set up a lengthy cat-and-mouse game, which can take months to play out.
According to those close to Twitter’s board, the directors never intended to prevent Musk from completing a negotiated agreement to acquire the social media business, but rather to prevent the Tesla CEO from acquiring it on the cheap.
Breakneck velocity
Musk made public the financial commitments required to take Twitter private late last week, much of which was supported by his own riches. Along with pledging $21 billion in stock, he also intended to utilise a portion of his Tesla investment to fund a $12.5 billion margin loan, for which he will be personally liable, culminating in a personal interest payment of more than $400 million each year.
Liquidity
The amount of Tesla shares traded on any one day sometimes eclipses the value of the next most heavily traded company in the United States, which includes Apple, chipmaker Nvidia, and Amazon. That liquidity provided bankers with comfort: if Musk defaulted, lenders thought they could sell enough Tesla shares on the open market – even if it was decreasing in value – to make good on the loan.
Most crucially, Musk’s offer to personally inject $21 billion in stock swung the tide, causing banks to stampede for a piece of the action.
Musk’s persistence was influencing views by the end of the week. As a stock market sell-off impacted other tech stocks, the 38% premium his offer offered became even more appealing. Musk’s hurried round of personal presentations to several of Twitter’s major investors on Friday aided in moving things ahead.
A pleasant accord
Musk engaged directly with Twitter’s chair, Bret Taylor, on Sunday, allowing them to set the tone and criteria for reaching an acceptable arrangement with safeguards and guarantees in place to protect shareholders.
Twitter’s board of directors directed its advisers at JPMorgan Chase and Goldman Sachs to put the finishing touches on the arrangement with Musk at a late-night board meeting on Sunday. In addition to Morgan Stanley, Tesla’s CEO received advice from Barclays and Bank of America.
Musk still has numerous issues to work out, the most pressing of which is how he can fund the $21 billion cash component of the offer. According to those close to the billionaire, he has yet to make a final decision but is well aware that he is on the hook and is prepared to sell shares in his electric car producer if necessary.
Meanwhile, he is in talks with other possible investors about joining him, according to individuals who know him. Whatever happens, Musk will be the man in charge if the 50-year-old accomplishes what he began and becomes the mayor of what he has dubbed the world’s “de facto public town square.”
