On Friday, financial markets were hit with news of Elon Musk abandoning the idea of Twitter (TWTR.US) purchase. The question of whether this is his final decision, or just a game aimed at lowering the transaction price, remains open, at least for the time being. In order for investors to get a clue on what could come next, it is worth getting to know the backstage of one of the most media-covered transactions in recent months.
It started as usual, innocently ...
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April 4 this year greeted investors from overseas with euphoria on Twitter shares, which grew by almost 28% in the pre-session market. The reason was the information about the purchase of a significant stake in the company by an eccentric billionaire, also called a visionary by some, Elon Musk. After the transaction, Musk owned 9.2% of the company's shares, which, according to Bloomberg data, was four times the size of the 2.25% held by Twitter founder Jack Dorsey. At that time, the value of Musk's Twitter shareholding was 2.89 billion USD. The market speculated that the deal could only be a prelude to taking over the entire platform. As it turned out later, he was right.
There was only one "but" ...
"Bots of contention"
In mid-April, Elon Musk made an offer to buy back all Twitter shares at 54.2 USD per share. As a result, the transaction was worth 44 billion USD. Twitter's management originally saw this as an attempted hostile takeover, but an agreement was reached and a final agreement was made with the management on April 25 for the purchase of Twitter. At the end of April, press reports appeared according to which Musk wants to introduce fees for using the ad-free platform. He also declared a desire to restore the account of former US President Donald Trump, which was banned after the elections in autumn 2020. As it turned out later, something completely different led to the failure of one of the most famous transactions on the M&A market. Musk saw great potential on the social media platform that could be unlocked if spam bots were defeated. And it was this factor that turned out to be a bone (or rather a bot) of contention.
Decisive 5%
Elon Musk expected evidence that Twitter bots accounted for less than 5% of all accounts. In his opinion, the greater number of fake accounts significantly reduces the profitability of the company, which in turn reduces its value. However, no one expected what was to come on July 8 this year. On Friday, Tesla's boss informed the world that he was withdrawing from the Twitter takeover deal, as the reason it failed to meet its contractual obligations, according to which the company did not provide the required information on the number of fake accounts and spam.
“Forced marriage”
Twitter's management board did not leave this information unnoticed. Bret Taylor, Twitter's CEO, issued a statement according to which his company intends to take legal action with Musk in order to force him to comply with the terms of the contract and takeover Twitter. Elon Musk, on his Twitter account (sic!) commented on this statement in his own style - publishing a meaningful graphic / meme:
Source: Elon's Musk Twitter account
Both Musk and Twitter representatives may not be amused, as both sides of the would-be deal agreed to pay out up to a billion dollars in certain circumstances. As of 13:20, Twitter shares (TWTR.US) in pre-trading quotes are losing 6.85% and are trading at 34.29 USD per share.
Time will tell if the above battle ended in a fixed-price takeover of 54.20 USD per share, at a lower price, or one of the most media disappointments in history.
Twitter stock chart (TWTR.US), D1 interval.
Source: xStation 5
Maciej Kietliński
Equity Market Expert, XTB
maciej.kietlinski@xtb.com
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