Elon Musk, no stranger to controversy, has drawn media attention with his takeover of Twitter. Musk says he has secured $46.5 billion in financing to acquire Twitter. Musk listed three sources: The first two would be loans from Morgan Stanley ($13.5 billion) and other banks ($12.5 billion). The third source might come from his personal fortune ($20.5 billion).
Courtney Vinopal, a news writer for PBS, wrote, “Elon Musk, has amassed one of the biggest followings on the social media platform over the years thanks to his musings, half of which he claims are made while on the toilet.”
Critics of Musk’s takeover worry that he will allow extremist content on the site.
To purchase Twitter, Musk secured $25.5 billion of debt and is providing a $21 billion equity commitment.
$54.20 is a significant premium to the closing price the day before Musk disclosed he had bought more than a 9% stake. However, it is below the $70 range where Twitter traded last year.
Jonathan Boyar, managing director of Boyar Value Group, said, “I think if the company (Twitter) were given enough time to transform itself, we (Boyar Group) would have made substantially more than what Musk is currently offering.”
Before accepting Musk’s bid of $54.20 per share, Twitter had enacted a Poison Pill to keep its independence.
What is a ‘poison pill’?
To prevent the buyout, the board of directors of Twitter had adopted a shareholder rights plan, often called a “poison pill.” A poison pill is a defense strategy used by a target firm to prevent or discourage a potential hostile takeover by an acquiring company. Under the new structure, if any person or group acquires beneficial ownership of at least 15% of Twitter’s outstanding common stock without the board’s approval, other shareholders will be allowed to purchase additional shares at a discount. The Poison Pill makes acquiring a company more expensive.
The New York-based legal firm Wachtell, Lipton, Rosen & Katz devised this tactic in the 1980’s. The name comes from the poison pill carried by spies in wartime to avoid interrogation by their enemies in the event they were captured.
What is the Purpose of the Poison Pill?
- It protects minority shareholders
- It avoids the change of control of current management
- It may be enacted to get a higher valuation
- To get more favorable terms for the acquisition
What are the reasons Musk wants to acquire Twitter?
The wealthy have always been attracted to news media, chiefly because influential media buys access and influence for the owners. For example, Rupert Murdoch acquired the New York Post in 1976 and the Wall Street Journal in 2007. Jeff Bezos bought the Washington Post in 2013.
Dan Kennedy, associate professor at Northeastern wrote, “I would say it is a combination of ego and genuine belief they can do good. They tend to believe that what these news organizations have lacked is their financial acumen.”
Musk said his deal to acquire Twitter was not about money.
Instead, Musk emphasizes that he wants to promote free and open speech on the service. He believes that Twitter occupies an essential place for sharing viewpoints.
Musk wrote, “I invested in Twitter as I believe in its potential to be the platform for free speech around the globe, and I believe free speech is a societal imperative for a functioning democracy. However, since making my investment I now realize the company will neither thrive nor serve this societal imperative in its current form. Twitter needs to be transformed as a private company.”
In brief, the world’s richest man wants a platform to share his vision, unlock its potential, and boost attention to himself.
Originally published in the Sarasota Herald-Tribune
