Where will Musk's relationship with Twitter go: a hostile takeover or another stove?

Musk (Xinhua News Agency reporter Yang Lei/photo)

On April 4, 2022, the U.S. Securities and Exchange Commission disclosed that Elon Musk, CEO of Tesla and SpaceX, owned Twitter (TWTR. US) 9.2 percent stake, becoming the largest shareholder, twitter has declared it on the board as a Second Class of directors for a term expiring at the 2024 annual shareholders' meeting. On the day of the news, Twitter's stock price rose more than 27%, the best single-day performance since the first day of the IPO in 2013.

But Musk refused to join the board, everyone was confused, and everyone speculated that joining the board of directors would be to comply with the charter of holding no more than 14.9% of the shares, and Musk did not go in to continue to buy the remaining shares, and eventually drive the other directors away and privatize Twitter.

On April 14, even more heavy news followed: Musk offered to buy a 100% stake in Twitter for $54.20 per share, and the total amount of the entire transaction was as high as $43 billion, while Twitter's current market capitalization is 35 billion. The Financial Times believes that the proposal constitutes a "hostile takeover" offer, and Twitter management will fully resist the knock on the door, which will make the acquisition cost a lot of cash and time.

Musk has not hidden his "conspiracy" in the slightest, publicly stating that Twitter has great potential, and he is going to transform it into a private company to unleash this potential.

The latest data from the Bloomberg Billionaires Index: Musk's wealth is about $259.3 billion, of which 176.5 billion is Tesla's shares, 56.3 billion are Tesla options, 40.3 billion are SpaceX equity, 3.4 billion are Twitter shares, and cash and other assets are about 3 billion. Therefore, in order to promote the acquisition, Musk will have to sell a considerable part of the stock or make a huge loan to raise funds.

After the news was released, Twitter pulled up 15% to $51.50 at one point, while Tesla plunged 1.21% before the market, quoted at $1022.37. Dogecoin, which is closely related to Musk, pulled up 8% short-term, with a maximum price of $0.147.

Why would Musk sell his equity stake in a premium asset and take a huge financial risk to acquire all of Twitter's stake?

At present, Twitter's revenue in 2021 is $5.08 billion, an increase of 37% year-on-year, of which advertising revenue accounts for more than 80%. However, Musk argues that Advanced Twitter Blue users can set identity badges, ban ads, lower fees, and accept Dogecoin payments. If he does take power and implements these measures, it is not friendly to advertisers.

While advertisers are worried, the currency circle is full of confidence in Musk because he firmly supports cryptocurrencies. After it became the "hanging CEO" of "Dogecoin", it triggered its short-term surge. On June 4, 2021, he tweeted a bitcoin + heartbreak emoji, and bitcoin plummeted by $5,000 and its market value shrank by 500 billion, which showed that he has a huge influence on digital cryptocurrencies. Musk has repeatedly stated that it is necessary to build a new type of social media to adapt to the application of cryptocurrencies.

Therefore, you may roughly guess Musk's thinking: it is better to decline in advertising revenue than to achieve Twitter transformation, because a 50% reduction in advertising revenue will reduce revenue by more than 2 billion, but if you can 100% control of the privatized Twitter, then the annual profit from the currency circle will reach tens of billions. It is not difficult to understand its motivation for deliberately suppressing advertising behavior.

As Musk conceives twitter's next-generation, more novel, "eat alone" business and profit architecture, it should also be seen that he not only wants to make more profits, but also has a deeper motivation.

No, not yet on the board, not yet a successful acquisition, Musk launched a vote on Twitter: "Do you want an edit button?" "The result is 74 percent in favor and 26 percent against, which is really aggressive."

Although Musk's bid is $8 billion higher than Twitter's current market capitalization, Twitter's board intends to reject its acquisition. To this extent, it seems that the two sides are no longer a simple commercial acquisition dispute.

If Twitter adamantly refuses to be acquired, the most extreme outcome could be: Musk liquidates all of its Twitter stakes, cashing out nearly $3 billion, causing its stock price to plummet, and then investing about 3 billion in cash positions on hand to build its own social media with a $6 billion investment.

In doing so, Musk takes much less financial risk, and the problem is: It will take years for him to grow from more than 80 million followers to Twitter's current 500 million registered users. Musk is willing to spend an extra $8 billion, not so much to get a Twitter user base as to buy time. The 51-year-old world's richest man is not bad at money, but he has felt the urgency of time like an arrow and the sun and the moon, and uses the money he earns to forge his position in human history.

Musk is already the richest man in the world with hundreds of billions of dollars, but he sold his mansion and lived in a simple mansion at SpaceX's headquarters, living a carefree but not luxurious life, working more than a dozen hours a day, so his motivation for tweeting may not be just to make more money. This time with Twitter, will he succeed? What will be the end result? And we'll see.

(This article is only the author's personal opinion and does not represent the position of this newspaper)

Mei Yijun