In a move that was both surprising and expected based on his recent activities, Elon Musk has offered to acquire 100% of Twitter for $54.20 per share (or a total of around $41 billion), just shy of a premium of 20% against the current share price ($45.85). This could be massive for Twitter investors. Since Musk announced his 9.1% purchase of Twitter, the social media platform’s share price went parabolic, increasing from $39 to $49 following the announcement.
Following his initial share purchase, it was announced Musk would be appointed to Twitter’s board of directors. However, this was quickly rescinded, likely due to the fact that if Musk agreed he would be limited to owning 15% of Twitter. Therefore, refusing to join paved the way for him to attempt to acquire Twitter in its entirety.
Although Musk’s offer is official, it does come with some stipulations. If successful in his acquisition, the Tesla CEO plans on taking Twitter private, claiming he doesn’t believe the site could reach its full potential while having to answer to shareholders. Additionally, he claimed that if his offer is denied, he’ll have to rethink his initial investment. Considering the news of Musk’s investment earned shareholders around 20% at the current price and his offer is another 20% above that, we imagine the board would have a difficult time convincing shareholders the offer isn’t worth it. If Twitter refuses Musk’s offer, expect stiff selling pressure and a ton of shares to get dropped on the open market, likely resulting in a harsh drop in value for Twitter.
While privatizing Twitter might be counterproductive for someone wanting to improve free speech on the platform, in reality, it could be an excellent move. Twitter earns the vast majority of its revenue from advertising (despite earning only a fraction of TikTok’s advertising revenue), meaning it has to censor some posts that go against advertising guidelines. By privatizing the company, Twitter will no longer be required to alter things for the sake of advertisers. Furthermore, considering the revenue Twitter earns from advertising is decreasing, switching up the way things are done could be exactly what’s needed to keep Twitter at the forefront of the industry.
As is typically the case with anything Musk touches, Twitter has already surged during premarket trading. This is a result of buyer sentiment shifting in reaction to Musk’s announcement. If the richest person in the world is offering a 20% premium on top of the share price, why wouldn’t you invest? Things are likely to continue in an upward trend until either Twitter refuses/accepts the offer or the price per share climbs close to the $54 mark.
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