Elon Musk Initiated a "Bear Hug" Offer to Buy Twitter — Will He Prevail?

Mohit Oberoi, CFA - Author
By

Apr. 14 2022, Published 8:53 a.m. ET

Tesla CEO Elon Musk is among the most popular business leaders globally. He manages to remain in the news most of the time. Over the last few weeks, Musk has been in the news for buying Twitter shares. There have been rumors about a hostile takeover.

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On April 4, Musk disclosed that he has taken a 9.2 percent stake in Twitter. Initially, he was set to take a board seat on the microblogging site but Musk turned down that offer. The move triggered rumors that he is looking to acquire the company. Musk has made an offer for Twitter, which is a typical “bear hug” in financial parlance where an entity makes an offer to acquire a company at way above its prevailing valuation. Who owns Twitter now and will Musk be able to take it private?

Musk makes an attractive offer for Twitter.

Musk has offered to buy Twitter at $54.20 per share, which would value the social media company at around $43 billion. Musk said, “I am offering to buy 100% of Twitter for $54.20 per share in cash, a 54% premium over the day before I began investing in Twitter and a 38% premium over the day before my investment was publicly announced.”

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Musk said, I invested in Twitter as I believe in its potential to be the platform for free speech around the globe, and I believe free speech is a societal imperative for a functioning democracy.” In the SEC filing, Musk also said that he would “unlock” the “extraordinary potential” in Twitter.

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Lately, Musk has been positioning himself as a champion of free speech. Musk and Tesla’s track record on protecting free speech has been mixed at best. In the past, Tesla and Musk have been under a scanner for threatening employees. The company still doesn't have a union even though Musk has said that workers are free to form one.

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The Twitter board might have a hard time refusing Musk’s offer.

The Twitter board has confirmed that it received Musk’s offer. The board will find it hard to turn down the offer since it's at a significant premium to the company’s current stock price. The board has a fiduciary duty to act in the best interest of stakeholders and unless we see a counteroffer, the probability of which seems low, the board would have to accept the offer.

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Who owns Twitter now?

Since Twitter is a publicly traded company, it's owned by stockholders, which includes insiders, institutions, as well as retail investors. With a 9.2 percent stake, Musk is the largest individual Twitter stockholder. Jack Dorsey, who quit as Twitter’s CEO in 2021 to focus on Block, only owns about a 2.4 percent stake in the company. Parag Agrawal replaced Dorsey but it remains to be seen if he will continue in the position if Musk were to take Twitter private.

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The Vanguard Group holds a 10.79 percent stake in Twitter. Morgan Stanley Investment Management, BlackRock, and State Street Global Advisors own 8.5 percent, 4.8 percent, and 4.8 percent stake, respectively, in Twitter.

Elon Musk is the richest person in the world.

Musk is the world’s richest person by a fairly large margin. Apart from Tesla, he also owns several privately held companies like SpaceX. If Twitter's board agrees to Musk’s offer, he would have added a social media company also to his business empire.

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