Earlier this month, we wrote about Elon Musk becoming the largest shareholder in Twitter and how it would impact social media, Elon Musk Has a Vision for Twitter, and It Could Change Social Media. We were fairly certain that he would acquire the micro-blogging platform when writing the story.
At that time, Tesla’s boss made it clear that he would join the Twitter board of directors after acquiring almost 10% of the stake to shape the platform’s future. However, he changed his mind and instead proposed to purchase the site for over 43 billion USD.
The skepticism around the deal increased when Waleed Talal, a Saudi Prince, refused to sell his 5.2% stake in Twitter and rejected Musk’s offer (1). Meanwhile, the company board also adopted a “poison pill” defense to discourage Musk’s efforts to take over the company.
The strategy made things difficult for Elon Musk or any other investor to purchase Twitter shares without consent from the board of directors (2). It left us wondering about Musk’s next move.
Soon, several reports emerged suggesting that Twitter’s next likely move is to formally reject Musk’s offer or negotiate. At the same time, Musk also had several options, including sweetening his offer, holding talks with the board, or even triggering the poison pill, which, experts suggest, would have been disastrous for Twitter (3).
While making his bid on Twitter, Musk said that the company “needs to be transformed as a private entity” to build trust with users and better serve what he calls the “the societal imperative” of free speech. He added that not the board but shareholders should decide whether Twitter goes private.
Recently, Musk had also criticized board members on Twitter, saying that he would save about 3 million USD every year by bringing the board’s salary to zero if his bid succeeds. Also, noting that board members only own a tiny financial stake collectively in Twitter shows that their “economic interests are not aligned with shareholders.”
“The entire episode put Twitter executives under pressure to show that it is not underperforming. Even the entire business model of social media of making money via ads, which Musk questions, is now up for discussion,” said Olaf Groth, a business professor at the University of California, Berkeley (4).
Groth added that Musk could have withdrawn his deals and sent a political signal to exert pressure.
But, on Monday, we received the news about Musk acquiring a 100% stake in Twitter for 44 billion USD, equivalent to 54.20 USD a share (5).
After Musk offered his best and final offer, proved that he had secured the finance, and no “white knights” appeared, Twitter finally decided to accept his offer.
The announcement finally put an end to this weeks-long saga. Once completed, it will be the largest private-equity deal in the last twenty years.
More About the Twitter-Musk Deal
“Free speech is the solid foundation of a functioning democracy, and Twitter is the digital town square where matters essential to humanity’s future are discussed,” said Musk in a statement included in the press release announcing the deal (6).
“Also, I want to make Twitter better than ever by ramping up the product with new features, making the algorithms open source to increase trust, get rid of the spambots, and authenticating all users. I see tremendous potential in Twitter and look forward to working with the company and users community to unlock it.”
The deal awaits shareholder and regulatory approval as it would become a private company once completed.
Assuming the deal closes and Musk takes Twitter ownership, the company will be under the control of the world’s richest person, who has also been its heavy critic while using it in legally contentious ways, mostly via sensitive posts about his car company Tesla.
Although Musk has indicated his primary interest in Twitter is about free speech, his critics are concerned that the billionaire’s control over the platform will silicate their voices and others with whom he may not agree, considering that he has often blocked critics from his account.
There was also distress about how Musk would fund the deal since much of his wealth is tied up in Tesla stock. However, the offer became solid when Musk announced in a Securities and Exchange Commission filing that he had received commitments of 46.5 billion USD to finance the deal (7).
It includes about 25.5 billion USD in margin loans and debt financing from Morgan Stanley Senior Funding and other firms. He has also committed about 21 billion USD in equity financing.
Musk also talked about exploring a tender offer to buy Twitter shares directly from shareholders in the same filing.
According to the agreement, Twitter investors will get 54.20 USD in cash for each share of Twitter common stock they hold when the proposed deal closes. The purchase price is a 38% premium to Twitter’s closing stock price on 1st April 2022. The final trading day before Musk disclosed his roughly 9% ownership in the company.
The transaction, which the Twitter Board of Directors has unanimously authorized, is scheduled to close in the next six months, subject to Twitter stockholder approval, regulatory clearances, and other standard closing conditions.
“The Twitter Board conducted a thorough and extensive process to analyze Elon’s bid with a conscious focus on value, certainty, and finance,” stated Bret Taylor, Twitter’s Independent Board Chair (8). “The proposed transaction will provide a significant cash premium to Twitter investors, and we believe it is the best path ahead for the company’s stockholders.”
“Twitter has a purpose and relevance that influences the entire world,” stated Twitter CEO Parag Agrawal (9). “We are proud of our teams and motivated by work that has never been more critical.”
You can review Twitter’s Current Report on Form 8-K, filed following the transaction, for more details on all terms and conditions in the formal transaction agreement.
Concerns Over Musk’s Twitter Ownership
Musk could work on the service away from the prying eyes of investors, regulators, and others by taking the company private. However, there will certainly be a lot more scrutiny.
Although Twitter is not among the top popular social media networks (it has more than 436 million monthly users, compared to billions on Facebook and Instagram), it has played a significant role in defining global narratives. Politicians have used it as a soapbox, while businesses, celebrities, and others have utilized it to build their brand.
Twitter has also faced several controversies in recent years, as some users have propagated misinformation and other toxic content on the platform.
Before getting banned from the service after the 6th January incident at the Capitol last year, former US President Donald Trump routinely used Twitter to inflame and criticize. On several occasions, Twitter had been forced to create policies on the fly to deal with unexpected situations.
Elon Musk himself had a rocky relationship with the platform. On Monday, he tweeted that he hoped his worst critics would remain on the platform because “that’s what free speech means.”
However, anyone who has followed Musk for a long time understands that this is underhanded. Musk believes in his own right to equate the Canadian Prime Minister to Adolf Hitler – now deleted or sharing transphobic memes in retaliation at his ex-partner.
When it comes to those who criticize Musk, though, he takes actions that would land many poorer individuals in prison (9). Also, earlier this year, Musk tried to target the Indian government for not making exceptions for the automaker in reducing import duties.
He had tweeted that Tesla is working through many challenges with the government, which pushed his fans in India to pressure Delhi. And now that he owns the company, he could also amplify tweets about his companies. In fact, he would be in the position to do anything he wants on the platform.
“Without any conditions for Elon Musk to acquire Twitter, the platform’s community standards, and recourse to ban users who violate those standards, Twitter could set a risky precedent for other social media companies to follow. It is a massive slippery slope,” said Bridget Todd, director at women’s rights organization UltraViolet (10).
However, regulators are unlikely to block this deal, say experts (11).
Regulators are Likely to Clear the Deal
The Federal Trade Commission and Justice Department, two agencies that regulate acquisitions, will review Musk’s deal to acquire Twitter. But these kinds of deals are not usually challenged by the government.
Most regulatory bodies only intervene when a company is acquiring a competitor or if the acquisition will unfairly benefit the acquirers in their other businesses.
Musk’s two major holdings are Tesla, an electric carmaker, and SpaceX, a rocket company. None of them compete with Twitter, and for now, there is no clarity on how Musk could link them to a social networking site.
“It appears that he has a major stake in two transport companies at the moment, and it is hard to see how Twitter has anything to do with any one of them,” said William Kovacic, a former chair of FTC (12). The same entity which had sued Facebook on its purchase of Instagram and Whatsapp to stamp out its possible future competitors (13).
Elon Musk’s Economic Plan With Twitter
Looking at the numbers of Twitter, we noticed that its revenue is stalled, and it is also struggling to add new users to its platforms. And it made us wonder about his broader economic plan with the platform.
However, at a conference shortly after announcing the deal, Musk said, “I don’t care about economics.” It seems like financial prospects are not what made Musk attracted to Twitter (14).
According to FactSet, Twitter has generated a profit of about 40 million USD on a 1.2 billion USD revenue in its first quarter. In the same quarter last year, it had made a profit of over 140 million USD (15).
And now, with Musk taking on billions of dollars in debt to acquire Twitter, analysts expect the platform to have at least 230 million USD in free cash flow, a lot stronger than the previous year.
The World’s Reactions
Users on Twitter showed a mix of reactions to this announcement; there was excitement, skepticism, and worry. The reaction also reflected the community’s divided cultural and political nature on the platform.
Multiple topics were trending on Twitter, including #ElonMusk, #RIPTwitter, and #Twittersold.
What Changes to Expect from Musk’s Twitter?
Elon Musk is unpredictable, and his politics are also elusive. It is somewhat challenging to determine what he will do once he takes over Twitter. However, if we look at his Twitter account, he has given certain hints about what he would change about the platform.
Here are a few main areas Musk could address:
Free Speech and Content Moderation
Musk discussed his ambitions to open-source the company’s algorithm at a TED conference this month (16), allowing users to see the code that determines how particular postings appear in their timelines.
“Having tweets strangely promoted and downgraded with no insight into what’s going on,” he said, the open-source solution would be preferable.
It is in line with the EU’s new Digital Services Directive, which mandates internet platforms of a certain size to open their algorithms. This “recommender” prohibits algorithms from profiling individuals and instead urges them to be chronologically based(17).
The Trump Question
Musk is adamant about not banning users. Rather, he wants them to be removed from the platform for a set time. This means that former President Donald Trump, who has stated that he has no plans to return to the platform, could do so (18).
Musk has stated that he will “fight the bots or die trying” and “authenticate all people.” It appears to be following the EU’s DSA bill (19), which requires major tech platforms to comply with know-your-customer regulations.