What’s the right price for Elon Musk to buy Twitter?
Musk believes he’s the one to unlock Twitter’s potential — and his plan starts with a $43B buyout offer. If he fails, the one to lose the most could be Twitter.
The price is not right
Here’s the timeline of Elon Musk’s hostile takeover attempt:
- April 4: It was revealed Musk took a 9.2% stake in Twitter.
- April 12: A major shareholder sued Musk for not disclosing his stake on time.
- April 14: Musk offered to buy Twitter for $52.40 per share.
His goal: Turn it into “the platform for free speech around the globe” — even if that means forgoing profits, saying he doesn’t “care about the economics at all.”
Just two problems: 1/ The price is too low for many of Twitter’s shareholders, and 2/ Musk doesn’t have the money secured (yet) to buy Twitter.
- Musk said it was the “best and final” offer — but many expect the deal to fail — as $TWTR trades 9% below its offer price.
- “No one believes this is the final price — no board in America is going to take that number,” — per Jefferies analyst (YF).
The price is also 32% below its 52-week highs, and $TWTR’s Saudi investors have already rejected the deal.
Buying a $34B company won’t be easy
…even for the wealthiest person in the world — who has most of his wealth in Tesla.
- Shareholders are worried if Musk owns 15%+ of $TWTR, he could have enough power to direct the company without being a board member.
- To buy some time, Twitter used a poison pill — a tactic that deters corporate takeovers — to prevent Musk from acquiring a 15%+ stake.
Twitter is already struggling against its other social media competitors — and it’s only been downhill since ex-CEO Jack Dorsey left last year.
- According to Matt Levine of Bloomberg, the move here would be to put Twitter through an auction.
- But Twitter is so big that it’ll have few buyers with the capacity to buy the company.
Other large tech companies (i.e., Google, Meta) will have difficulty getting it approved by regulators.
Investors: Big distraction
Analysts have an average price target of $44.42 on $TWTR next year. Matt Levine of Bloomberg expects $TWTR to fall back to pre-Musk levels if Twitter’s board rejects the offer.
- If Twitter is acquired, it could be the end of an 8-year journey since going public — which has taken it virtually nowhere.
- If not, it could be a big distraction for a company that’s already facing internal issues.
How Musk buys Twitter is only one question. Another, what’s the right price? The correct answer is… it depends on who buys it.
Contestant 1: Elon Musk
Markets see his $52.40 as too low — but in negotiation, you’d never offer your starting price. According to the NY Post, Musk is reportedly talking to investors to partner on the deal. So how high could Musk go?
- Per Bloomberg, Musk could partner with Oracle (NYSE:ORCL) — who’s CEO sits on Twitter’s board.
- According to Bloomberg analysts, a partnership could raise the bid to $50B (~$61 per share).
Contestant 2: Private equity buyers
Private equity (PE) investment firms are known for buying companies using cash and debt. So far, private equity firm Thoma Bravo has expressed interest in buying Twitter — but hasn’t made an offer yet.
- Per Wells Fargo analyst Brian Fitzgerald, PE firms could pay $60-65 per share for Twitter.
- Ives thinks a sale to a PE firm would be unlikely, given Twitter’s business model and lack of free cash flow (SA).
Contestant 3: Twitter
In the third option, no one buys Twitter, and its stock falls back to its pre-Musk levels.
- Per Wells Fargo Securities (YF), accepting a bid under Twitter’s 52-week high ($73) would be difficult.
- Ives thinks Musk walking away is the most unlikely option, and it’s also unlikely that Musk will go down without a fight.
On Saturday, Musk tweeted “Love Me Tender” — a sign that Musk could make a tender offer to buy Twitter. Per Barron’s — a tender offer is the next stage of a hostile takeover — going directly to shareholders in an attempt to buy their stock.
Who’s the right buyer? According to research firm MoffettNathanson and other analysts (Barron’s), anyone who’s willing to buy. They think Twitter is unlikely to reach its $77 peak from last year under the current management team and business model.