Elon Musk, the world’s richest person, recently announced the purchase of Twitter for $44 billion. Since then, there have been continuous updates one after the other regarding this deal. By raising the issue of a fake account, Musk wants to reduce the amount of this deal. After all these updates, it is now being discussed that Elon Musk wants to back out from this deal, so he is talking about various things.
Is Elon Musk Hesitating to Buy Twitter Now? Is he feeling remorse about this deal? Or is he trying to create drama for the markets, which suits his public persona? Or can Musk negotiate a better price? Many questions are swirling right now. Canada Research Chair and Associate Professor, Business, University of Calgary Anoop Srivastava give his opinion on these issues.
Musk began buying Twitter stock in January. On March 14, he announced a 9.2 per cent stake in the company. On April 5, Twitter CEO Parag Agarwal announced that Musk would join Twitter’s board of directors, calling it a welcome move that would make Twitter stronger in the long run.
On April 10, Agarwal announced that Musk had decided not to join the board. On April 14, Musk offered to pay $54.20 per share to buy the company’s entire stock. On April 15, Twitter announced a shareholder rights plan to prevent Musk from acquiring the company.
Borrowing $13 billion
On April 21, Musk presented a detailed plan to finance the $44 billion deal. Notably, Musk said he would pay the US $21 billion from his funds that would come primarily from the sale of his Tesla stock holdings and that he would borrow US$13 billion in return for his Tesla holdings. Given a solid funding plan, Twitter’s board accepted Musk’s offer on April 25.
Is everyone happy after that?
This should have been a joyous time for Twitter and Musk. Still, on May 17, Musk expressed concern that 20 per cent of Twitter accounts were fake, that what he offered was based on the actual number of Twitter subscribers, and that He would not proceed with the deal unless there were evidence that less than five per cent of the accounts are bogus.
Musk’s threat made no sense, as his offer was never about the number of clients or the deal’s economics. After all, Twitter’s revenue, cash flow, dividends, or profits cannot justify a US $44 billion valuations.
Twitter subscribers were never discussed initially.
Furthermore, Musk never did his calculations by multiplying the cost per subscriber by Twitter’s subscriber count. His move was mainly about what he wanted Twitter to be. Or was it a sham purchase, like buying a modern newspaper, like many wealthy people do (Jeff Bezos owns the Washington Post and Rupert Murdoch owns the Wall Street Journal)?
If Musk thought many Twitter accounts were fake, why did he tweet so many times? Musk made several important announcements on Twitter, including his infamous tweet about privatizing Tesla.
The effect of these reasons
What happened since their previous announcements? In my opinion, two factors changed Musk’s mind. First, the slowdown in technology stocks, especially media stocks, meant that Twitter was no longer as valuable as a standalone company as in early January. Second, Tesla shareholders were shaken by Musk’s move. They became concerned that Musk would spend his time changing Twitter rather than focusing on the task of advancing electric vehicles.
Tesla shares fall sharply.
He will also be concerned about his debt-ridden CEO, who is now planning to sell or pledge Tesla shares to satisfy his wishes. Tesla shares fell from the US $1,091 on April 5, when Twitter announced the joining of Musk to its board of directors and was valued at the US $728 on May 17, just before Musk questioned Twitter’s subscriber numbers.
$60 billion personal loss
This fall in prices is equivalent to a loss of $ 380 billion. Musk owns approximately 175 million shares in Tesla, meaning he lost $64 billion, more than the $44 billion he planned to pay for Twitter. Musk is a cunning businessman and a shrewd negotiator – one doesn’t become the wealthiest person in the world just by smoking a cigar. They have probably realized now that Twitter is not worth following, and the potential for loss of profit from this deal is high.
