Elon Musk made an offer to purchase Twitter less than 2 weeks ago, on the 14th of April 2022. The Twitter board of directors flailed about, contemplating ways of fending off the takeover.
However, as it became clear that Musk was serious about the offer, which valued Twitter at $44 billion, the board had no choice but to accept it.
The world’s richest man only revealed he could be serious about buying Twitter on the 26th of March 2022. On that day, talking about Twitter, he tweeted, “Is a new platform needed? Am giving serious thought to this.”
We had no idea at the time that in less than a month he would add Twitter to his personal collection. This has divided opinion, to put it mildly.
Elon Musk is the textbook case of a polarising figure. It often feels like half the world loathes him and the other adores him, there are very few indifferent. He could literally drown a baby and have defenders or cure cancer and be lambasted still. We saw how he somehow still got criticism for helping Ukraine with Starlink internet.
Politics explain the divide. Moderates and conservatives either love him or have nothing against him and progressives hate him. Twitter being a Silicon Valley company, most of their employees, from the low levels to the board, are progressives and so are not fond of Musk.
That’s why the board of directors wanted to use a poison pill to ward off Musk. So, if they felt so strongly, why did they accept the offer?
Economics
Twitter was listed publicly in 2013 and has posted profits in only 2 out of 9 years of its public life. At only just above $1bn, the profits haven’t exactly been encouraging.
About 90% of Twitter’s revenue comes from advertising. So, Twitter is similar to Google and Facebook in that they are essentially advertising companies. Google brought in $257 bn, Facebook $117bn and Twitter only $5bn in 2021.
With each passing year, it looks like Twitter is never going to join the 1 billion users club. After consecutive quarters of declining user count numbers Twitter stopped reporting monthly users in 2019.
With all that and more in Twitter’s shareholders’ minds, there is little doubt that they will accept Musk’s offer to buy the company. After all, the amount he offered was 38% more than what the company was valued at when he made the offer.
To consider also is that Twitter is set to report its Q1 2022 earnings tomorrow, the 28th of April. Some have mentioned that Twitter’s board could have been liable for damages if the earnings report led to a drop in share price.
See, the market has its own expected earnings per share (EPS) figure and if the actual EPS figure is lower than that, the share price usually falls. So if the board knows their earnings report will lead to a drop in share price (aka shareholders losing money), they could have been liable for damages for not bringing Elon Musk’s takeover bid to them.
After hearing that, one can’t help but think it was no coincidence that Musk timed his takeover offer so. The board had no option but to bring the offer to the shareholders, regardless of how they felt about it.
How it transpired
Musk started buying shares in Twitter in January 2022 and the series of events since then would make for a good movie.
On 4 April it became public knowledge that he owned a 9.2% stake and he was invited to join the board of directors. For a short while it seemed he would take up that offer. The board wanted that because taking that seat would have meant he could not own more than 14.9% of the company.
On the 11th of April Musk filed the necessary documents with the government that allowed him to buy as many Twitter shares as he wanted. This came after telling the board that he wouldn’t be joining them on the 8th.
On the 14th Musk had a $43bn takeover ready and he called it his best and final offer. This offer was 38% more than the company’s valuation on that date.
On the 15th, the board came up with a plan to make it much more expensive for Musk to buy the company – a poison pill. The plan was to offer other shareholders shares at a discount if Musk exceeded 15% ownership. Those extra shares would reduce Musk’s percentage ownership meaning he would have to invest even more to take over the company.
On the 21st, Elon announced he had secured $46.5bn in funding. The Twitter board began talks with him only 3 days later. Then after only a day of talks Twitter had agreed to sell itself to Musk.
In the business takeover world, this all happened in the blink of an eye.
Musk’s plans for Twitter
Bringing (back) free speech
Musk says he is a free speech absolutist and believes Twitter does not hold to proper free speech standards. After the deal was announced he said,
Free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated
You have to take his word here because he has been consistent. Back when Donald Trump, who he is not particularly fond of, was permanently banned from Twitter, Musk expressed that he felt that, “a lot of people are going to be super unhappy with West Coast high tech as the de facto arbiter of free speech.”
So, Musk has ideas on how to fix the censorship and shadowbanning happening on Twitter.
Open-source algorithms
Conservatives and moderates have long claimed that they are censored and shadowbanned on Twitter, which they feel favours leftist viewpoints. Shadowbanning is the process of limiting the reach of a post clandestinely, without outright banning the user.
Musk wants to tackle this and believes transparency on Twitter’s part will help bring back some lost trust. He wants to open-source its algorithms, or in English, to reveal how decisions are made on what and how posts are shared with users. Musk said if tweets are “emphasized or de-emphasized, that action should remain apparent.”
Blue ticks for everyone
There is a bot problem on Twitter and Musk calls them the single most annoying problem on Twitter. You’ve no doubt interacted with these bots which usually peddle in financial scams.
Musk’s solution? Authenticate all real humans. Or at least to link all accounts with an email address, phone number or photos. You know, like it is on most other online platforms. This would remove some of the anonymity which strengthens some trolls.
I for one would appreciate a blue check against my name. I think my 31 followers deserve to know they are talking to the real me.
Other changes
The man has a lot of ideas and we shall see which ones make the cut. Some of the ones he has expressed so far include:
- Removal of all ads – Musk said, “The power of corporations to dictate policy is greatly enhanced if Twitter depends on advertising money to survive.”
- An edit button – Long overdue if you ask me, I mean, even Facebook has one. Right now on Twitter it’s either you delete and write a new one or accept the typo and move on.
- Longer posts – I’m not sure I’m for this but Musk once mentioned he would like longer posts.
The deal is not yet done
There is still a small chance the deal could not go through but all seems to be in place for Elon Musk to have his wish and become the king of Twitter. The shareholders of Twitter still have to approve the deal and the US regulators have to sign off. Analysts don’t expect there to be any problems.
Musk plans to delist Twitter from stock exchanges and take it private if all goes to plan.
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