Morgan Stanley and others fund Elon Musk in $46.5 billion Twitter takeover bid

Morgan Stanley and others fund Elon Musk in $46.5 billion Twitter takeover bid

What just happened? On Wednesday, Elon Musk filed paperwork with the Securities And Exchange Commission (SEC) stating that he has received funding to buy all of Twitter’s outstanding stock, which as of February 10, 2022, was 800,641,166 shares. Musk’s Schedule 13D amendment states that he has raised $46.5 billion in funding, more than enough for the entire purchase.

Last week, Twitter ignored Musk’s bid to buy the company outright for $41 billion — it’s worth less than $36 billion. Instead the board of directors initiated a poison pill strategy to prevent him from executing a hostile takeover. The plan calls for Twitter to offer more stock to its shareholders if Musk acquires a 15-percent stake in the company, thus diluting shares and making a takeover much more expensive.

Musk’s counter to the poison pill is to drive straight through to a tender offer. Usually, when a stakeholder gains 15-percent active interest in a firm, it can attempt a hostile takeover by paying other shareholders a premium price for voting shares (a tender offer). Twitter’s poison pill was meant to prevent Musk from doing this, but the board underestimated his ability or commitment to take the company forcefully.

Seeing Twitter’s poison pill in place, Musk decided to skip trying to pick up the 5.8 percent he needed to get to 15 percent and went straight for the tender offer. His filing with the SEC indicates that he has received commitment letters from Morgan Stanley and “other financial institutions” showing he has $46.5 billion in funding. Presumably, Musk would use the money to make a tender offer directly to shareholders.

Keep in mind that this is just an amendment to Musk’s 13D (originally a 13G, non-active) filing. It does not commit to any purchase or a tender offer. It just lets the SEC know that he does have the money to pay for such a transaction if the opportunity arises.

Under the current 13D amendment, Musk proposes to pay $54.20 per share of outstanding stock. Twitter is currently trading at $46.85 per share after a slight upward spike this morning when news of the filing broke. Ignoring the fact that the price will eventually normalize, that’s 17 percent profit to any shareholder taking the offer.

Although his bid is for all outstanding stock, Musk does not need it all to takeover. All he needs is enough voting shares to give him control of the board. With the ability to win any board vote, Musk could do anything he wanted as long as it was in the best interest of the shareholders, including firing existing management and replacing it with his own.

Musk indicated in a tweet that his offer is meant to take Twitter private (among other things), but that’s not likely to happen for $46.5 billion. He needs 51 percent of the stock to take Twitter off the market. It’s very unclear whether enough shareholders support that decision, especially when it means giving up their investment in the company. However, it could turn into a long-term goal if he gains control.

In the meantime, it will be interesting to see precisely where this goes. Can Twitter execute its poison pill now rather than waiting for Musk to gain 15 percent? If Musk does make a tender offer, how many shareholders will sell out? If enough do, we could see some pretty dramatic changes in how the company operates.


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