Updated at 3:50 pm EST
Twitter (TWTR) – Get Twitter, Inc. Report shares moved higher Monday, but still sit well below the takeover price offered by Tesla (TSLA) – Get Tesla Inc Report CEO Elon Musk last week, as the world’s richest man digs in for what could be a messy and protracted battle with the social media group’s board of directors.
Musk, in fact, said Monday that he would essentially eliminate all board members, taking collective salaries to “$0 if my bid succeeds, so that’s ~$3M/year saved right there” in his latest Twitter-launched salvo.
Last week’s drama, highlighted by Musk’s surprise $43 billion takeover bid — around a week after he had filed papers with the Securities and Exchange Commission claiming to be a passive investor in the micro-blogging website — was followed by Twitter’s move to adopt a so-called poison pill defense. The provision allows existing shareholders to buy more Twitter stock at a discount should any one, or a group of, investors gain control of 15% of the company without board approval.
Other buyers are reportedly looming, as well, including buyout firm Thoma Bravo and private equity group Silver Lake, which helped Twitter on a convertible bond financing deal in 2020.
Friday’s announced poison pill puts
Elon Musk’s $43B hostile takeover on hold for now, and in our view, raises the
stock’s risk profile significantly as we are skeptical of sudden speculated interest
from white knight(s), and value accretion at a higher bid,” said Benchmark analyst Mark Zgutowicz.
“From our vantage point,
Twitter’s board may have just looked a gift horse in the mouth and if not careful,
may repeat Yahoo’s historic shareholder fail, passing on Microsoft’s $45 billion 2008 bid to
settle for Verizon’s $5 billion eight years later,” he added
Twitter shares were marked 6.8% higher in late afternoon trading Monday to change hands at $48.14 each.
Musk hinted late Saturday, in a typically cryptic Twitter message, that he may take his $54.20 per share offer directly to shareholders, but had also indicated during a TED talk in Vancouver last week that “I’m not sure that I will actually be able to acquire it.”
Musk has also, in effect, gone directly to shareholders via his Twitter account in terms of messaging, posting a weekend poll that ask if his $43 billion takeover approach should be decided by those who own Twitter stock, and not those who sit on the board (whom, he noted, own very little Twitter stock).
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The approach provides a contradiction to Musk’s original takeover letter, in which he said he would “reconsider” his investment in the group if the board were to reject his “best and final” offer of $54.20 per share, suggesting he was happy with standard corporate governance practices that empower board members to act on behalf of shareholders.
One of Twitter’s most important shareholders — Saudi Prince Alwaleed Bin Talal — has already said the $43 billion bid “doesn’t come close to matching “the intrinsic value of Twitter given its growth prospects”, while others are likely to point to the fact that shares in the group traded north of $70 as recently as last year.
Musk’s relationship with Twitter — which he called a “war zone” during his 60 Minutes interview in 2018 — remains complicated, in that he is both a prolific user of the site — with more than 80 million followers — as well as one of its more vocal critics.
Late last month, Musk said he was giving ‘serious thought” to starting his own social media company, and accused Twitter of “failing to adhere to free speech principles fundamentally undermines democracy” given that the site “serves as the de facto public town square.”
His use of Twitter has also drawn the ire of the SEC — who will surely ask why he first filed a 13-G several days after its original deadline — most famously in 2018 when the agency charged him with securities fraud related to a Tweet that he had ‘funding secured” to take the Tesla private.
Musk maintains that was true, but agreed to pay two $20 million fines, and have his Tweets vetted, in order to placate the SEC’s objections.
The following year, however, he Tweeted (again) that Tesla would produce around 500,000 cars in 2019, but backtracked on the remarks a few hours later (but not before the stock rose sharply in response.
Another Musk Tweet, this time in the fall of last year, sent Tesla shares in the other direction after he asked his Twitter followers if he should sell “10% of my Tesla stock” in order to create a tax liability.
Tesla told investors in a subsequent 10-K filing that the SEC had “issued a subpoena to us seeking information on our governance processes around compliance” with the 2018 settlement.
Twitter, for its part, faces an uphill battle to both increase the number of monetizable daily active users, its term for the number of daily users who can view ads, while keeping content moderation at a level that will attract new users without alienating current ones.
Looking into the coming year, Twitter said it sees revenue growth in the “low to mid 20% range” and held onto its 2021 guidance that sees $7.5 billion in revenues and 315 million daily active users by 2023.