Musk, Twitter on Verge of Deal

Twitter’s board and Tesla CEO Elon Musk negotiated into the early hours of Monday over his bid to buy the social media platform, The New York Times reports. The negotiations followed a special meeting of the Twitter board on Sunday, the Times said, basing its report on two people with inside information.Twitter (TWTR) was up 2.2% in premarket trading, to $51.50. Neither Musk nor Twitter responded to a request by The New York Times for comment. Unless Musk partners with another investment bank, private equity firm or other financial partner, he is likely to take Twitter private if he succeeds in acquiring it, Dan Ives, an analyst at Wedbush Securities, wrote in a note on Sunday.Musk said last week that he had lined up $46.5 billion in financing to buy Twitter, putting pressure on the company’s board to negotiate a deal.The Times, citing people with knowledge of the situation who it did not identify, says the two sides were discussing details including a timeline and fees if an agreement was signed and then fell apart. The people said the situation was fluid and fast-moving.Twitter had enacted an anti-takeover measure known as a poison pill that could make a takeover attempt prohibitively expensive. But the board decided to negotiate after Musk updated his proposal to show he had secured financing, according to The Wall Street Journal, which was first to report the negotiations were underway.

According to a new Securities and Exchange Commission (SEC) filing revealed Thursday, Musk had secured $46.5B to acquire Twitter. 

According to theBlaze, Musk had declared his previous offer to purchase the company outright for $43B his “best and final” offer. The $46.5B was secured just days after the Twitter board opted for a “poison pill,” in an effort to block Musk’s acquisition of the company. 

However, the Wall Street Journal reported Sunday that Twitter is “taking a fresh look at the offer and is more likely than before to seek to negotiate,” adding that “the situation is fast-moving and it is still far from guaranteed Twitter will do so.” 

The Journal also noted that the two sides are meeting Sunday to discuss Musk’s proposal.

The company’s decision to engage with Musk, taken earlier on Sunday, does not mean that it will accept his $54.20 per share bid, the sources said. It signifies, however, that Twitter is now exploring whether a sale of the company to Musk is possible on attractive terms, people familiar with the matter told Reuters.

Musk, chief executive of electric car giant Tesla Inc , has been meeting with Twitter shareholders in the last few days, seeking support for his bid. He has said Twitter needs to be taken private to grow and become a genuine platform for free speech.

Many Twitter shareholders reached out to the company after Musk outlined a detailed financing plan for his bid on Thursday and urged it not to let the opportunity for a deal slip away, Reuters reported earlier on Sunday.

Musk’s insistence that his bid for Twitter is his “best and final” has emerged as a hurdle in the deal negotiations, the sources said. Nevertheless, Twitter’s board has decided to engage with Musk to gather more information on his ability to complete the deal, and potentially get better terms, the sources added.

Twitter has not yet decided if it will explore a sale to put pressure on Musk to raise his bid, according to the sources. The people with knowledge of the matter declined to be identified because the deal discussions are confidential.

Twitter wants to know more about any active investigations by regulators into Musk, including by the U.S. Securities and Exchange Commission (SEC), that would present a risk to the deal being completed, one of the sources said.

Securities lawyers say that Musk, who settled charges that he misled investors by suggesting four years ago he had secured funding to take Tesla private, may have breached SEC disclosure rules as he amassed a stake in Twitter earlier this year.

Twitter is also looking into whether regulators in any of the major markets it operates would object to Musk owning the company, the source added. Were Twitter to establish that a sale to Musk would be risky, it could ask for a sizeable break-up fee, according to the sources.

The social media company adopted a poison pill after Musk made his offer to prevent him from raising his more than 9% stake in the company above 15% without negotiating a deal with its board. In response, Musk has threatened to launch a tender offer that he could use to register Twitter shareholder support for his bid.

A concern that Twitter’s board weighed was that unless it sought to negotiate a deal with Musk, many shareholders could back him in a tender offer, the sources said.

While the poison pill would prevent Twitter shareholders from tendering their shares, the company is worried that its negotiating hand would weaken considerably if it was shown to be going against the will of many of its investors, the sources added.

Representatives for Twitter and Musk did not immediately respond to requests for comment.

The Wall Street Journal reported earlier on Sunday that Musk and Twitter would meet to discuss the acquisition offer.

‘INTRINSIC VALUE’

The price expectations among Twitter shareholders for the deal diverge largely based on their investment strategy, the sources said.

Active long-term shareholders, who together with index funds hold the biggest chunk of Twitter shares, have higher price expectations, some in the $60s-per-share, the sources said. They are also more inclined to give Parag Agrawal, who became Twitter’s chief executive in November, more time to boost the value of the company’s stock, the sources added.

“I don’t believe that the proposed offer by Elon Musk ($54.20 per share) comes close to the intrinsic value of Twitter given its growth prospects,” Saudi Arabia’s Prince Alwaleed bin Talal, a Twitter shareholder, tweeted on April 14.

Short term-minded investors such as hedge funds want Twitter to accept Musk’s offer or ask for only a small increase, the sources said. Some of these are fretting that a recent plunge in the value of technology stocks amid concerns over inflation and an economic slowdown makes it unlikely Twitter will be able to deliver more value for itself anytime soon, the sources added.

“I would say, take the $54.20 a share and be done with it,” said Sahm Adrangi, portfolio manager at Kerrisdale Capital Management, a hedge fund that owns 1.13 million shares in Twitter, or 0.15% of the company, and has been an investor since early 2020.MUSK FOLLOWERS NOT BUYING TWTR

One silver lining for Twitter’s board is that Musk’s offer did not appear to convert much of his army of 83 million Twitter followers into new shareholders in the San Francisco-based company who could back his bid, the sources said.

Twitter’s retail investor base has increased from about 20% before Musk unveiled his stake on April 4 to some 22%, according to the sources.

Reuters contributed.

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