WASHINGTON DC — Even for the richest person
on the planet, buying
Twitter was always going to be a challenge — a highly
complex financial transaction now made even trickier by a defensive “poison
pill” move from the platform’s board.
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Musk’s $43 billion offer lays out the myriad
potential pitfalls: possible government approvals, legal as well as regulatory
due diligence, negotiations of a final agreement and, of course, how to pay for
it all.
Then Twitter’s board on Friday showed it won’t go
quietly, saying any acquisition of over 15 percent of the firm’s stock without
its OK would trigger a plan to flood the market with shares and thus make a
buyout much harder.
“Your move
@elonmusk,” tweeted Silicon Valley
journalist Kara Swisher.
The offer itself, which Musk said was final, values
Twitter at $54.20 per share — above the closing price ahead of his bid, but
below a high of $77.06 hit in February of last year.
Even with a moderate and inflexible proposal, which
could help the board argue for rejection, it’s a fraught moment that could end
in lawsuits from just about everyone involved.
To succeed in repelling
Musk’s offer, the Twitter
board will need to be on solid ground making an argument that the company is
worth more, said Wharton School finance professor Kevin Kaiser.
Shareholders who
feel that the board is rejecting a profitable deal will be free to file
lawsuits against Twitter.
Sidestep the board?
Musk has the option of
sidestepping the board and trying to buy shares directly from shareholders on
the market, but that could lead to tedious negotiations with some stock owners
holding out for more money.
“The Twitter board has limited ability under
Delaware law to stop a tender offer made directly to the shareholders, which
Elon Musk hasn’t done, but which he could do if he chose to,” Kaiser said.
“If he does this, and if the shareholders elect to
tender their shares, then he can succeed without needing board support or
approval.”
While the serial
entrepreneur’s net worth is estimated at $265 billion by Forbes, his fortune is
not sitting in a bank account waiting to be spent.
Musk said at a TED Conference that he had
“sufficient funds” to consummate the deal, but financial analysts describe the
situation as more complicated.
Much of Musk’s wealth comes from shares of electric
car maker Tesla, which he runs.
Musk would need to turn a chunk of his Tesla holding
into cash, either by selling shares or taking out loans with stock as
collateral.
“The specifics of how Musk would finance the deal
will determine the ramifications for Twitter,” Moody’s said in a note to
investors.
Moody’s estimated it would cost Musk $39 billion to
buy all the outstanding Twitter shares, and that there would be “a strong
chance” he would have to repay or refinance the San Francisco-based company’s
billions of dollars of existing debt.
That was before the poison pill move by Twitter that
ramps up the cost for Musk.
Musk tweeted a poll that hinted he might be thinking
of taking his bid directly to shareholders.
He asked whether taking the company private for his
offered price should be up to shareholders and not the board.
As the poll neared its close on Friday, more than
2.7 million votes had been cast with nearly 84 percent of them in favor of the
idea.
Selling a massive amount of shares in Tesla to buy
Twitter would come with a large tax bill based on capital gains, and could
cause shares in the electric car company to sink as the market is flooded with
stock for sale.
Musk could keep hold of his shares and get a loan, absorbing
the interest payments. Or he could team up with a deep-pocketed partner, but
that could come with the strong-willed executive having someone to answer to
regarding his decisions at Twitter.
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