Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Will Elon Musk succeed in taking Twitter private?
Elon Musk, the world’s richest man has declared publicly his intention to take private Twitter Inc (NYSE: TWTR).
Last week Musk sent a $43.4 billion ($54.20 per share) offer to the Twitter Board to buy the remaining 91% of the business he doesn’t already own.
The Board is yet to officially respond. Instead, it has since enacted a poison pill defence strategy to deter Musk from exceeding the 15% ownership threshold.
What started as a congenial relationship has recently turned into a full-blown turf war.
How did we get here? Is Elon genuine? And can he pull it off?
Below water eights year on
It’s largely agreed Twitter’s life as a public company has been nothing short of underwhelming. Executives have failed to live up to lofty growth expectations, monetise its loyal user base or record a profit in the past two years.
The Board hasn’t exactly basked themselves in glory either. They approved a part-time CEO and recently settled a US$809 million shareholder class action. Excluding ex-CEO Jack Dorsey, the board owns just 0.12% of the business.
Despite all the unforced errors by management, Twitter has managed to become the global platform for sharing ideas and connecting people. Investors recognise this and have previously attempted to realise its value.
“Twitter has extraordinary potential. I will unlock it.” – Elon Musk
Salesforce CEO Marc Benioff was willing to part with $20 billion to acquire the business in 2016 before taking advice from confidants to turf the deal.
Then in 2020 hedge fund Elliott Management forced its way onto the board demanding change at the top. Subsequently, long-time CTO Parag Agrawal succeeded Dorsey as CEO.
Despite the growth and product improvement accelerating since the Twitter share price languished 20% below its 2013 IPO before.
Then news of Musk’s 9% stake broke, sending the Twitter share price up 27% in one day. Many will point to Musk’s involvement as a positive. But the share price movement is more damning of the Twitter management team, which has created zero shareholder value after eight years.
More than money
For Musk, this is more than just about monetising an underappreciated asset. In his words, this is a fight for free speech. At his most recent TED talk, Musk said “I don’t care about the economics at all” and “this isn’t sort of a way to make money”.
Musk has taken particular issue with Twitter’s algorithm and content moderation. He wants to implement a more liberal policy, one that enables all views as well as make the algorithm open-sourced and content decisions public. Timeouts would be favoured instead of bans, opening the door for divisive users such as Donald Trump and Alex Jones back to the platform.
“If it‘s a grey area, let the tweet exist” – Elon Musk
This is likely why he declined the board seat. He realised that implementing his vision would be impossible with the current board and management.
But would placing Twitter in the hands of the world’s richest man really enhance free speech? Or would it give him unfettered access to a treasure chest of user data without the checks and balances of a public company? Proponents argue that a private Twitter would harm democracy and free thought, not enhance it as Musk believes.
Are you serious?
Musk did not mince his words when submitting his takeover offer. Accept or I walk:
“My offer is my best and final offer and if it is not accepted, I would need to reconsider my position as a shareholder” – Elon Musk
The Twitter share price closed at $45 on Friday, a notable 17% discount from Musk’s bid. Clearly, the market believes the Board will decline. Subsequently, Musk will walk leading to the Twitter share price cratering back down to $30.
Even if the Board accepts, the deal could still fall over. Musk has a history of creating buzz and then moving on to the next exciting ornament. In March 2021 he announced Tesla would begin accepting Bitcoin. Then in May, he reneged citing climate concerns. In July, Bitcoin was ‘likely’ to be accepted by Tesla in the future.
Could Twitter be his latest for lack of a better term pump and dump? The board declining his offer would give him the cover to dump his shareholding for a quick profit and mount enormous pressure back on a company that has shown little competency to create shareholder value.
Even if he is genuine, funding the purchase could be problematic. While he maintains a net wealth of about US$250 billion, much of this is paper gains tied up in SpaceX and Tesla stock. He would likely need to fund Twitter through a combination of selling assets, loaning against his shares and including other shareholders.
Serious or not, there are still several hurdles to overcome for the deal to get through.
The only question that matters
At the end of the day, past performance and Musk’s personal tangents are irrelevant. The key question is Twitter worth more, less or equal than $54.20 per share?
Given the company recorded an accounting loss for the past two years, there are no earnings to value the business off. Of the 31 analysts offering 12-month price targets, the average is $45 per share, bang on its last traded price and implying Musk’s offer is a reasonable premium. Ironically, the investment bank advising Twitter Goldman Sachs has just a $30 per share price target.
$43 billion seems extraordinarily cheap for one of the dominant social networks of the 21st century. But it’s becoming increasingly apparent this battle has become much bigger than just the price tag.
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