Elon Musk Chooses Buying Twitter Versus Uphill Court Battle

The long drama between TwitterTWTR
management and Elon Musk appears to be coming to an end, with Elon Musk reportedly deciding to close on the acquisition of Twitter at the original offer price. Shares in TWTR were briefly halted this morning after rumors hit Wall Street that Mr. Musk would be throwing in the towel and closing on the deal.

The stock popped by more than 15% and trading was halted for a second time and as of the time of the writing of this article it was still up more than 12%. This has been great news for shareholders after a months and months of drama for both Twitter and Elon Musk.

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After first taking a minority stake of 9.1% in the company and then rejecting an offer of a seat on the Board of Directors, Musk on 4/14 made a hostile takeover bid of $54.20/share, an 18.2% premium over where it was trading, valuing the company at 5.5x estimated 2023 revenue.

From then on, there continued to be controversy. Just prior to Musk’s takeover bid, an investor in Twitter filed suit in the U.S. District Court of New York stating that Musk did not disclose the fact that he had taken a more than 5% equity stake within 10 days to the SEC.

Musk took a very aggressive stance with the Twitter Board, stating in an S.E.C. filing, “My offer is my best and final offer and if it is not accepted, I would need to consider my position as a shareholder…I am not playing the back-and-forth game.”

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This appeared to be a veiled threat that if the Board didn’t accept his offer he would dump his 9.1% stake on the open market, which could cause shares to plummet.

This apparently did not sit well with the Board, which adopted a “Poison Pill” on April 14. The Rights Plan gave existing shareholders the right to buy more shares at a price which would make it unattractive for anyone to go forward with a hostile takeover bid or buy more than 15% of Twitter without Board approval.

A couple of other potential suitors appeared in the press (Thoma Bravo LP and Apollo Global) but never put forward a bid. The press was questioning how Musk could finance such a huge takeover, which seemed ironic as Forbes had just put out a list of the wealthiest people and Elon Musk topped it with a net worth of $127 billion.

Mr. Musk then announced on 4/20 that the bid was fully financed, with $46.5 billion in financing from a number of banks paired with a Marin Loan Commitment for $12.5 billion, using his shares in TeslaTSLA
as collateral.

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In May, Elon Musk disclosed that he had reduced this commitment to $6.25 billion after getting equity financing from more than a dozen investors (on a wide range of the spectrum, from Benchmark Capital to HRH Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud).

At the same time, it was rumored that he was courting Jack Dorsey to take a Board seat in the new Twitter while rolling his nearly $1 billion in Twitter equity into the new company.

Then, things started to get ugly. In July, Musk said he was terminating his deal to buy Twitter, citing Twitter had failed or refused to respond to multiple requests for information on fake or spam accounts which is fundamental to the company’s business performance.

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He also said Twitter was in material breach of their agreement and had appeared to have made false and misleading representations. The Chairman of Twitter, Bret Taylor, tweeted that the company would sue to force Elon Musk to complete the transaction, and they did.

Despite all of this controversy, in August, Elon Musk sold almost $7 billion in Tesla stock, explaining in a tweet that the shares were sold so in, “the (hopefully unlikely) event that Twitter forces this deal to close *and* some equity partners don’t come through, it is important to avoid an emergency sale of Tesla stock.”

Elon Musk was to sit for a deposition this week to provide testimony to be used in the trial which would have begun on October 17. With shareholders already having approved the merger, Musk must have decided it would be less of a headache to just go ahead with the merger with his investment now only at a little over $6 billion, rather than to have a lengthy trial at which he might lose anyways.

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Press reports state that Musk’s legal team were not feeling good about his odds at trial after the Judge sided with Twitter in a number of pre-trial rulings. At the end of the day, even with a Twitter whistleblower who alleged that executives at the company weren’t forthcoming on security and bot issues, Elon Musk was fighting an uphill battle.

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