It looks as if Elon Musk and Twitter’s (NYSE: TWTR) board of directors are close to reaching a deal.
The billionaire investor and CEO of Tesla announced an offer of $54.20 for Twitter stock, which he later called his “best and final” bid for the company.
Musk wants to buy Twitter personally. Tesla is not involved in the deal, although there has been speculation that he will merge the two operations with his other businesses, including SpaceX, into one single holding company, after registering a company called X Holdings.
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Musk’s offer for Twitter stock looks like a done deal
As the richest person in the world, Musk shouldn’t have any trouble raising funding for the deal. According to a regulatory filing, he has already lined up $25.5bn in debt financing from key banking partners and is looking to provide $21bn of equity for the deal himself. These funds may come from Tesla’s controversial 2018 bonus scheme.
I say he shouldn’t have any trouble raising the funds as there’s no guarantee Musk’s banking partners will stump up the cash. Part of the debt financing is a margin loan of $12.5bn secured against his stake in Tesla. Equity market volatility could send bankers running if Tesla shares suddenly plunge in value.
There are plenty of other hurdles the deal will have to overcome before the finish line, but where there’s a will there’s a way. While the current market price of Twitter stock is below the offer price of $54.20 (suggesting investors are sceptical), Musk has the resources to push through any deal.
Most importantly it seems as if he has won over the support of Twitter’s management, which only last week tried to block any potential deal by putting in place a so-called poison pill. This would have diluted the billionaire’s stake if he’d bought more than 15% of the business without their approval.
Investors should take the money and run
With tech stocks across the market facing heavy selling pressure, Musk has emerged as a white knight for Twitter’s investors. His interest in the business has shielded its shareholders from the wider market sell-off. As the tech-heavy Nasdaq index has plunged 20% this year, Twitter stock has jumped 20%.
Still, there are many reasons why the deal could fall apart, and considering the current market conditions, there is no telling where Twitter could end up if it does.
As uncertainty prevails, the best option for shareholders may be to take the money and run.
Rupert is the Deputy Digital Editor of MoneyWeek. He has been an active investor since leaving school and has always been fascinated by the world of business and investing.
His style has been heavily influenced by US investors Warren Buffett and Philip Carret. He is always looking for high-quality growth opportunities trading at a reasonable price, preferring cash generative businesses with strong balance sheets over blue-sky growth stocks.
Rupert was a freelance financial journalist for 10 years before moving to MoneyWeek, writing for several UK and international publications aimed at a range of readers, from the first timer to experienced high net wealth individuals and fund managers. During this time he had developed a deep understanding of the financial markets and the factors that influence them.
He has written for the Motley Fool, Gurufocus and ValueWalk among others. Rupert has also founded and managed several businesses, including New York-based hedge fund newsletter, Hidden Value Stocks, written over 20 ebooks and appeared as an expert commentator on the BBC World Service.
He has achieved the CFA UK Certificate in Investment Management, Chartered Institute for Securities & Investment Investment Advice Diploma and Chartered Institute for Securities & Investment Private Client Investment Advice & Management (PCIAM) qualification.
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