Whew! Elon Musk finally acquired Twitter on 25th April 2022 for $44bn. The days before signing the deal were nothing short of a family saga on TV or a well-crafted family drama.
We know we are late in sending this write-up, but we wanted to share the inside scoop. Most news channels and papers shared the news and its salient features. But we thought we could dig a little deeper and know the story behind the Tesla owner’s deal.
Let us understand how Elon Musk’s Tesla-Twitter deal came about.
Elon Musk quietly began buying Twitter shares in January this year. But few noticed this buying spree till he announced holding a 9.1% stake in Twitter in the first week of April. The news that the richest man was now the largest shareholder in his favorite social media channel sent the world a-twitter and stock prices soaring.
Wanting to flex his proverbial muscles, Musk tweeted a poll asking for suggestions to improve Twitter. The Twitter board offered him a seat. A seat that would have let him own only 15% of the company. Initially, he agreed and then later declined the offer. Few understood why he changed his mind.
Securities Exchange Commission -Here I Come
After refusing the seat on the Board, Musk updated his filing in the SEC, which showed he was no longer willing to be a passive participant in the company, restricting himself to only a 14% stake. His actions would have been the first signs that Musk was looking to do something more than owning a stake to get a seat on the Twitter Board.
Speculations Galore
People watched the news and forgot about Musk’s stake in Twitter by evening. Few believed he would launch a hostile takeover. Experts briefly thought he could buy Twitter, but they reasoned Musk had everything he wanted out of Twitter.
Musk Offers to Buy – His Final Salvo
Musk started his bid as the best and final offer Twitter could get. He was offering Twitter which had a $37bn market cap, a fair premium of $43bn. Musk felt the best way forward was to go private to undergo changes he wanted, like the edit feature, an open-source algorithm, less moderation, and a higher limit to remove offending tweets.
Experts Wondered Why The Hostile Takeover
Would the richest man need to buy a company for money? What do you think? Musk wanted everyone to believe he was an advocate of free speech and was trying to protect it. He believes Twitter is the modern town square. Experts felt Musk leaped before looking and did not have a plan in mind because his finances weren’t lined-up, and he was still talking with Morgan Stanley for a loan. They felt if Elon got Twitter to change its policies then, he could even take his offer back.
Twitter Board -What Was Happening There
The Twitter Board was not happy with Musk’s takeover bid but evaluated the offer. They later invoked the ‘Poison Pill’, which would hamper Musk’s attempt to assume control. The Poison Pill strategy is when existing shareholders get the right to purchase additional stock at a high discount, diluting the holdings of the new hostile investor. It is called a shareholder rights plan.
Musk Puts Forth His Finance Plan
Elon Musk put forth his bid financing plan with loans worth $46.5bn that would let him finance his buyout offer in a new filing with the SEC on 14th April 2022. Morgan Stanley Senior Funding agreed to two debt loans worth $25.5bn. The remaining $21bn would be from Musk’s finance.
The will-he, won’t-he story finally ended on 25th April 2022. The Board evaluated the funded offer over the weekend. Elon Musk expressed his pleasure with a Tweet.
The Impact Of This Buyout
The publicly listed company will become a private holding, and Musk will have total control over Twitter. It could mean a lighter moderation policy, an algorithm open to the public, and perhaps reopening doors to the likes of Donald Trump on Twitter.
Many worry about what happens if Twitter no longer has strict content moderation. Unregulated free speech on social media could become ugly quickly.
What Does This Takeover Mean For India Operations?
India is one of the biggest markets for Twitter, with 23.6 million users since January 2022, as per Statista. Musk’s plans for Twitter are sketchy at best. Neil Shah, VP of Counterpoint Research, India, told moneycontrol, “Someone like Parag, being a CEO and an Indian, understands fairly well how important and strategic market India is, but Elon might have a different vision.”
The Indian government and Twitter are at odds on several matters. The most recent issue was compliance with the new IT rules. Moreover, Elon Musk’s run-ins with the government over the import duties for Tesla may become a hindrance.
Starlink, a part of Musk’s SpaceX, was banned from accepting pre-orders for its satellite broadband services in India without a license in November 2021, while the Telecom department asked the company to refund all the pre-orders.
Free Speech –Another Challenge In India
Social media channels have struggled with balancing free speech and moderation. Several government departments use Twitter to disseminate information. The team may need to be cautious in public while trying to appease the government in the background. Experts believe Musk may have no such compulsions and could do as he pleases.
There could be a day when he may even shut down Twitter India operations, which could have a far-reaching geopolitical impact. Elon has significant clout on Twitter, which he leverages successfully.
Remember Dogecoin and Shibu Inu, the two cryptocurrencies that became popular after a single tweet from Musk. His tweet suspending Bitcoin as a payment option at Tesla led to its crash in 2021.
Revenue Challenges Ahead
Twitter now must reach 315 million monetizable daily active users (mDAUs) with a revenue of $7.5 billion by December 2023. They reported 217 million mDAUs and a topline of $5.08bn at the end of 2021.
The Way Forward
Despite the drawbacks, many feel Musk could help Twitter turn around as he did for SpaceX, Tesla, and PayPal. Industry experts believe there could be more deployment of Twitter Blue, the premium subscription service. Other initiatives may also get support in a bid to make Twitter profitable.
The question remains. Should Musk have control of Twitter despite the benefits the company may reap? We will have to wait to see how things play out and what happens to Twitter now.
I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.