Many investors, analysts and investment bankers expect Twitter Inc.’s board of directors to reject Elon Musk’s $43 billion takeover offer in the coming days, considering it inadequate, but then how will the social media company move forward?
Twitter shares fell on Thursday after Musk unveiled his offer, as the market deemed it too low and too thin on financing details. Twitter’s board is currently evaluating the bid, and many investors and analysts say any changes to Musk’s offering are likely to be disallowed.
Here are some options available to Twitter’s board, should it decide to turn down Musk’s offer:
buy more time
Twitter’s board may decide not to engage in sales talks with Musk and instead give more time to its new chief executive Parag Agarwal to meet the company’s operational goals. The board last week adopted a one-year poison pill that prevents Musk from owning more than 15% of the company without his consent, briefly winning himself over. It also faces no short-term challenges as the deadline for investors to put forward candidates for their own board at its annual shareholder meeting in May passed without filing a rival slate.
Agarwal, formerly Twitter’s chief technology officer, will replace Jack Dorsey at the helm of the company at the end of November.
Agarwal said in February that he was sticking with the ambitious revenue and user growth goals the company announced last year, despite investor skepticism lingering on Twitter’s shares. Those goals include reaching 315 million average ‘monetizable’ daily active users – registered users who view ads on the platform – and generating at least $7.5 billion in annual revenue by the end of 2023.
Twitter posted revenue of $5.1 billion in 2021 and averaged 217 million monetized daily active users in the fourth quarter of 2021.
Musk has given conflicting indications of what he will do if his bid fails. He said last week that he would reconsider his position as a Twitter shareholder if his offer was rejected. This could indicate that Musk will then sell his more than 9% stake in Twitter and walk away. However, Musk also tweeted last week that Twitter shareholders should have their say on his proposed deal, regardless of what the company’s board thinks. Some investors interpreted this as a sign that it would be ready to make hostile bidding.
try to negotiate with musk
Twitter may offer to open its books to Musk, hopefully leading to a better offer. It will test the details of Musk’s $54.20 all-cash bid as his “best and final offer”. The chief executive officer of Tesla Inc., whose net worth is estimated at $265 billion by Forbes, has not specified how much of his own fortune he will own. Willing to contribute to a deal to acquire Twitter.
It is possible that Musk may partner with private equity firms, sovereign wealth funds or other deep-pocketed investors to reduce his own equity checks in any transaction. He said last Thursday that he wants as many existing Twitter shareholders to legally roll their part in a deal.
solicit bids from other parties
Twitter’s board could explore strategic options, which would include contacting companies, private equity firms and other potential suitors, to ascertain their interest in a deal. The advantage of this option is that it can identify a better deal or pressure Musk to increase his offer.
The downside is that it could raise the hopes of many investors that Twitter will sell itself, pressing it to negotiate a deal from a position of weakness, given that its shares are trading at slightly more than half their value. . one year ago.
One potential bidder, buyout firm Thoma Bravo LP, contacted Twitter last week to express its interest in an offer challenging Musk, Reuters reported. Other private equity firms may enter the fray, and some technology and media companies may even choose to brave the regulatory scrutiny that comes with such a deal.
It is possible that any alternative transaction chosen by Twitter will not be an acquisition. In 2020, the company agreed to sell $1 billion in convertible bonds to private equity firm Silver Lake, a move that helped it fund a $2 billion share buyback. Twitter can now choose to pursue a similar deal with another party, raising more cash and avoiding an outright sale.
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