Musk may have to sell Tesla in order to buy Twitter; if not, Musk may sell Twitter.
Shortly after holding a 9.2 percent stake in Twitter (TWTR) and becoming the company's largest shareholder, musk filed a filing with the U.S. Securities and Exchange Commission (SEC) on Thursday (April 14) proposing to buy all of Twitter's shares in cash for about $43 billion ($54.20 per share), after Twitter surged 12 percent ahead of market hours on Thursday.
But Twitter's shareholders and board of directors don't seem to want to accept Musk's offer. According to media reports, Twitter's board is considering launching a "poison pill plan" to prevent Musk from significantly increasing his stake in the company, which is a measure for the acquired company to resist hostile acquisitions.
Saudi Prince Alwaleed bin Talal, who claims to be one of Twitter's largest shareholders, and his Kingdom Holding publicly rejected Musk's offer on Thursday. He tweeted: "Given Twitter's growth prospects, I don't think Musk's offer is close to Twitter's intrinsic value. ”
Musk replied: "Interesting, so allow me to ask two questions: How much does Kingdom Holding hold in Twitter, directly or indirectly?" What is Kingdom Holding's view on freedom of expression in the press? ”
According to media reports, Talal and Kingdom Holding held more than 5 percent of Twitter's stake in 2015, but the current stake cannot be confirmed.
In addition, the news of Musk's acquisition of Twitter has also sparked a wave of discussion about restoring the accounts of former US President Trump, but Trump said in an interview on Wednesday that he was not interested in using Twitter. "We're doing a big platform right now, so I probably don't have much interest in using Twitter anymore," he said. ”
Twitter shares retreated after rushing higher due to uncertainty over Musk's acquisition, closing down 1.68 percent to $45.08 at the close on Thursday. Tesla closed down 3.66 percent on Thursday as investors feared that Musk's involvement in Twitter would distract him from his job at Tesla (TSLA) or that he would sell Tesla shares to finance the acquisition.
Dan Ives, an analyst at Wedbush, said in a research note on Thursday: "Expect a lot of twists and turns in the coming weeks. ”
1
It's not easy to succeed in an acquisition
Aside from opposition from Twitter shareholders and boards, where Musk's $43 billion acquisition financing will come from is unknown. Barron's noted that while Musk's net worth is estimated to be between $219 billion and $259 billion, most of his wealth comes from Tesla's stock and his privately owned rocket company, SpaceX.
Analysts believe Musk may have to finance the acquisition by selling Tesla stock and a large number of loans.
Neil Campling, head of TMT research at Mirabaud Equity Research, said: "This has become a hostile acquisition that costs a lot of cash, and Musk will have to sell a significant portion of Tesla stock to raise funds, or use Tesla stock as collateral to obtain a huge loan." ”
Wells Fargo analyst Colin Langan noted that Musk now has about $3 billion in cash and other liquid assets after buying a 9.2 percent stake in Twitter, and he needs $36 billion to complete the deal, excluding his already held stake in Twitter, which means selling about 36.5 million shares of Tesla stock, equivalent to more than a fifth of his stake. Selling shares would cause Tesla stock to fall and raise questions about Musk's commitments on the company's finances and other aspects.
Roth Capital analyst Craig Irwin told Barron's that Tesla is Musk and Musk is Tesla. He doesn't think any other executive at the company can push Tesla forward like Musk.
In addition, Musk can buy Twitter with up to 25% of Tesla stock as collateral to obtain a loan. According to Tesla's rules, Musk could borrow $42.5 billion by mortgaging his $170 billion worth of stock, a amount not much different from his offer for Twitter. But regulatory documents show that as of August 2021, Musk has used more than half of his Tesla stock holdings as collateral to obtain personal loans.
It remains to be seen whether Musk will be able to secure a loan from the bank, as Tesla's stock price has risen to $1145 and then to $764 since mid-February, and the sharp volatility could make it difficult to find financial support for the acquisition.
Robert Schiffman, senior credit analyst at Bloomberg Intelligence, wrote in a research note on Thursday: "Musk's 'best and final' $43 billion offer is subject to a lot of constraints, including financing, so we believe the likelihood of a successful acquisition is low." ”
Musk also acknowledged at the TED conference on Thursday that he wasn't sure if his proposed acquisition would be successful. Asked if he had secured financing, Musk said he had "enough assets." He also said he had a plan B if Twitter rejected his offer, but didn't explain it more.
2
In the short term, investors should steer clear of Twitter and Tesla stocks
Brian Quinn, a professor at Boston University Law School, told Barron's by email that Musk's proposed purchase price premium isn't high, especially considering that Twitter's stock price has risen as high as $72 in the past year.
Musk's filing with the SEC on Thursday included a letter he wrote Wednesday to Twitter Chairman Bret Taylor, in which he told Taylor: "My bid is the best and ultimate, and if it is not accepted, given my lack of confidence in management, I have to reconsider my status as a shareholder." This is not a threat, and it is simply not a good investment without the necessary reforms. ”
Quinn believes that while Musk says it's not a threat, it sounds like a threat and could give the board an extra reason to refuse the acquisition.
Raymond James analyst Aaron Kessler noted that Twitter's board believes the long-term outlook for the company's users and profit growth is strong, so Twitter may stick to its own path for now, with long-term stock prices likely to reach higher levels at a time of improved business execution. ”
Christopher Davis of the law firm Kleinberg, Kaplan, Wolff & Cohen in New York told Barron's by email: "If Musk doesn't see his path to implementing his value theory on Twitter, he might sell his twitter stock."
Barron's noted that given the size of Musk's stake, it may take a while for him to get out of hand, and that's a notable issue, as he will have to disclose when each major sale will take place, which will put downward pressure on Twitter's stock price.
In addition, Musk's "obsession" with Twitter in public, on Twitter and in private through various statements and stakes may also cause legal trouble. According to media reports on Tuesday, Musk was sued for failing to disclose information about his holdings of more than 5% of Twitter stock in a timely manner, but instead waiting until the stake reached 9.2%. According to the allegations, the practice hurt the interests of investors who sold Twitter shares in the nearly two weeks before Musk disclosed his holdings.
Before Musk revealed the acquisition of Twitter, there were also media reports that both the SEC and the Justice Department were reviewing Musk's actions on Twitter, "including the legality of his initial filings and public statements." ”
Barron's believes Musk's recent "obsession" with Twitter could be a warning sign that investors should avoid buying Twitter and Tesla stock in the short term until the hustle and bustle surrounding the event subsides.
Wen | Contributor to the Chinese edition of Barron's Magazine Guo Liqun
Edit | Peng Ren
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Original barronschina articles, not reproduced without permission.
(This article is for your informational purposes only and does not constitute the provision or reliance of investment, accounting, legal or tax advice.) ）
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