Why does Musk's Buffett-strategy not work on TWTR.US?

The Zhitong Finance APP learned that on Thursday, Tesla (TSLA. US) CEO Musk offered to buy Twitter (TWTR. US)。 However, Saudi Prince Alwaleed bin Talal, Twitter's majority shareholder, believes Musk is underestimating Twitter and rejects its offer as a result. Twitter's board also believes musk's offer to buy the company is not popular and is considering a "Poison Pill" to defend against hostile takeovers.

Musk's proposed $43 billion move to buy Twitter appears to borrow from Buffett's "take it or give up" strategy. But why can't Musk repeat the same "script"?

1. "The best and final offer"

Musk called the offer his "best and last offer" and said "Twitter has extraordinary potential and I will unleash that potential." In addition, he added: "If the offer is not accepted, I will need to reconsider my position as a shareholder. ”

However, investors and analysts say that for this strategy to work, Musk needs a quote that is attractive enough and more details about the financing.

Buffett has all known to hammer out a number of big deals through its BRK.A.US, including a $37 billion acquisition of precision castings maker Precision Castparts, an aerospace equipment maker, in 2016, and a $11.6 billion cash acquisition of property and disaster insurer Alleghany in March.

Buffett doesn't negotiate when he makes deals. He is very candid about the price he is willing to pay to acquire a company and does not "bargain", but he is always able to complete the deal because he always offers a reasonable and fair price. Buffett's bids for Precision Castparts and Alleghany were considered fair by the targets, and they were backed by financing promised by Berkshire Hathaway.

In contrast, the market believes that Musk's bid is too low. Musk's offer of $54.20 per share is a 54 percent premium to Twitter's closing price on January 28, 2022 (the trading day before Musk's recent massive buying of Twitter stock) and 38 percent higher than Twitter's closing price on April 1, the trading day before Musk disclosed that he held about 9 percent of Twitter's shares), but given that Twitter's stock price was above $60 for most of 2021, the offer isn't attractive enough.

The market reaction also suggests that investors are generally skeptical that the deal will be possible. After the news that Musk will buy Twitter, Twitter's US stock rose more than 12% at one point; After the news of Saudi Prince Alwaleed bin Talal's rejection of Musk's acquisition proposal, Twitter's stock price accelerated its intraday decline, and finally the US stock market closed down 1.68% on Thursday.

Chris Pultz, M&A arbitrage portfolio manager at Kellner Capital, said: "I don't think Twitter's board will have a hard time rejecting the deal. The premium for that offer isn't too high, and Twitter's current share price isn't high. Vital Knowledge also commented that given that Twitter's stock price was still at $70 less than a year ago, it's hard to imagine that Twitter's board is willing to accept an offer of $54.2 per share.

Analysts say that while Musk called his first bid "the best and last offer," if he is willing to make another offer, given his resources as the world's richest man, his chances of closing a deal are greatly enhanced. Bank of America analyst Justin Post said Thursday: "Twitter's board may have reasons to reject the first offer and look into options for higher prices."

2, financing details are pitiful

Musk, on the other hand, provided too few details about the financing.

Although Musk is the world's richest man, he has few liquid assets, and how to come up with tens of billions of dollars to complete the acquisition is a problem. Wells Fargo analysts noted that Musk may have to sell Tesla shares to raise cash for the acquisition. Speaking at TED events on Thursday, Musk said, "I have enough assets to be able to complete (the acquisition)." But he also added that he was not sure if the acquisition would be successfully completed.

Musk sold more than $15 billion worth of Tesla shares, or about 10 percent of his stake, last year, in part to address his tax payments. It's unclear how many Tesla shares Musk owns that could be used to buy Twitter, and he could sell more Tesla stock or use those shares as collateral for a loan. In a filing filed with regulators on Thursday, Musk did not disclose details about the financing.

In addition, given the uncertainty about Twitter's operating model after it was acquired by Musk, it is unclear whether the bank is willing to provide a loan for the transaction. Musk is critical of Twitter's current management and opposes Twitter's reliance on ads (even though ads account for the bulk of the company's revenue).

3) Musk doesn't seem to be trustworthy

Musk's previous changes in the cryptocurrency space are not conducive to gaining the trust of investors. Lawrence Cunningham, a law professor at George Washington University, said: "For 60 years, Buffett has proven that what he says will do what he says, and that his words have tremendous value. If it were with Musk, I wouldn't believe him..."

In addition, there are many grudges between Musk and regulators. After Musk tweeted about taking Tesla private in 2018, the U.S. Securities and Exchange Commission (SEC) filed fraud charges against him. In this incident, Musk and Tesla each paid a $20 million civil fine, and Musk also resigned as Tesla's chairman. The SEC said his financing tweets at the time "lacked sufficient factual basis."

To this day, Musk is still angry about this, and even pointed out that SEC officials are "Bastards" in a speech at Thursday's TED event. Musk said that when he tweeted, the funds to take Tesla private were actually secured, but the SEC launched an investigation anyway. "So I was forced to make illegal concessions to the SEC,"

It is worth noting that Musk previously acquired Twitter (TWTR. US) may have missed a key disclosure deadline in the process of 9.2 percent of the shares, so it is possible to violate U.S. securities laws again and could lead to an investigation by the SEC.

Musk was also sued by other Twitter shareholders for delaying disclosure. In a class-action lawsuit filed in U.S. federal district court for the U.S. district of Manhattan, prosecutors said Musk failed to disclose his Twitter holdings in a timely manner and made "material false and misleading statements and omissions." Other shareholders said the delay in disclosure allowed Musk to buy more Twitter shares early at a low price and deceptively let them sell shares at a lower price, missing out on a share price rise. Industry insiders said the SEC could investigate market manipulation regarding Twitter stock purchases.