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Elon Musk could make a takeover bid for Twitter. What does that mean?

Elon Musk’s cryptic tweets suggest he could escalate his $43 billion Twitter TWTR bid 0.77%

B. by submitting a takeover bid to buy the social media company. The tweets are apparently related to Elvis Presley’s hit song “Love Me Tender” and F. Scott Fitzgerald’s novel “Tender Is the Night.”

In the coming days, Twitter is expected to dismiss Mr Musk’s offer of $54.20 per share as too low. If this really was Mr. Musk’s “best and last” offer, as he said, a takeover bid would be his next best option. He has confirmed exploring this route.

Here you can find out what you should know about tender offers – and especially about this possible one.

What is a takeover bid?

There are two ways to buy a public company. The simplest and most common is a board-approved merger. Talks start in secret, the two sides haggle and then come to an agreement. Shareholders can vote and it’s all or nothing: typically, by a simple majority, the buyer walks away with the entire company. If the vote fails, the buyer gets nothing.

Instead, a takeover bid directly asks shareholders to sell — or offer — their shares at a specific price. It can be used in friend deals, but its real value is to hostile bidders if the target company’s board of directors does not intervene. Tender offers just go around them.

And they are not all or nothing. For example, a buyer can bid for just enough shares to exceed 50% and take control. From there, she could replace unyielding board members with friendlier ones, but in practice it rarely gets that far. When a takeover bid is likely to succeed, reluctant executives tend to capitulate and negotiate a deal.

How would a takeover bid for Twitter work?

Mr. Musk would, with some regulatory filing, announce the offering at a specific price. The offer must remain on the table for at least 20 days.

These documents would set out the number of shares he is asking for. If Mr. Musk, who owns more than 9% of Twitter, takes a simple approach, he’d aim for another 41% or so.

In the meantime, Twitter would have 10 days to make its own recommendation to shareholders on the takeover bid — in which case, presumably, that they not accept it.

If not enough shares are offered, Mr. Musk could withdraw the offer or change the terms.

As Elon Musk attempts to buy Twitter, the WSJ looks back at Twitter’s former suitors like Salesforce, Disney, and Alphabet. Tech reporter Tim Higgins explains why those past talks failed and what’s different this time. Picture: Nikki Walker

What about Twitter’s poison pill?

Last week, Twitter set up a roadblock to disappoint Mr Musk, or at least hamper his pursuit, while it reviews his offer: a so-called poison pill. This legal maneuver, if Mr. Musk increased his stake above 15%, would dilute his holdings by offering discounted shares to every other investor.

So even if he gets reasonable support for his takeover bid, the pill makes actually buying those stocks complicated.

Still, a successful takeover bid would send a strong signal to Twitter’s directors, two of whom are up for re-election at the company’s annual meeting, currently scheduled for May 25. There are no competing candidates, but directors don’t like to let shareholders vote against them en masse.

Mr Musk could urge shareholders to vote against co-directors Egon Durban and Patrick Pichette in what would be a referendum on his offer, said Andrew Freedman, a partner at Olshan Frome Wolosky LLP, who advises activist investors on campaigns.

What information would be included in an offer?

Takeover bids typically include details that would guide shareholders’ decision-making, e.g. B. Where the money is coming from, conditions attached to the offer and what the buyer intends to do with the company if it is successful.

Mr. Musk disclosed $46.5 billion in committed funding, including more than $25 billion in debt and $21 billion in equity from him. His original offer didn’t include any funding details, raising questions about his ability to fund it.

A takeover bid must also contain information about previous discussions between the buyer and the target company. So it could flesh out a narrative Mr. Musk alluded to when he included in a securities file a couple of text messages he sent to the chairman of Twitter just before he went public with his offer.

Will Twitter Shareholders Support a Takeover Bid?

It seems unlikely that many will do so at the current price, which is well below the $70-plus per share that Twitter was trading at just last year. Some analysts have said Mr Musk’s Twitter bid was undervalued and the stock traded well below the original offer price, a sign of a lack of enthusiasm from investors.

Still, Mr. Musk has threatened to sell his stake if he doesn’t see a way to a deal, likely causing Twitter’s share price to fall. And there’s already a rout in tech stocks. Some investors may want to encourage him to stay by offering their shares in the hope that he will be forced to raise his price to convince the board.

Write to Cara Lombardo at cara.lombardo@wsj.com and Liz Hoffman at liz.hoffman@wsj.com

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