What To Expect From Twitter Amidst Musk And Thomas Bravo’s Buyout

Many investors, analysts, and investment bankers expect Twitter Inc’s board of directors to reject Elon Musk’s $43 billion acquisition offer in the coming days as inadequate, but how would the social media company then proceed?

Twitter shares dropped on Thursday after Musk unveiled his offer, as the market deemed it too low and too thin on financing details. Twitter’s board is currently evaluating the bid and many investors and analysts say that rejection is likely, barring any changes to the offer from Musk.

Here are some options available to Twitter’s board should it decide to turn down Musk’s offer:

BUY MORE TIME

Twitter’s board may decide not to engage in sale talks with Musk and instead give more time to its new Chief Executive Parag Agrawal to meet the company’s operational targets. The board adopted a one-year poison pill last week that prevents Musk from owning more than 15% of the company without its consent, winning itself some time.

It also faces no short-term challenge because the deadline for investors to put forward their own board nominees at its annual shareholder meeting in May passed without any rival slate filed.

Agrawal, previously Twitter’s chief technology officer, succeeded Jack Dorsey at the helm of the company at the end of November.

Agrawal said in February that he was sticking with the ambitious revenue and user growth goals that the company announced last year, despite investor skepticism that has weighed on Twitter’s shares.

Those goals include reaching 315 million average ‘monetizable’ daily active users — registered users that see ads on the platform — and generating at least $7.5 billion of annual revenue by the end of 2023. Twitter posted $5.1 billion of revenue in 2021 and averaged 217 million monetizable daily active users in the fourth quarter of 2021.

However, Musk also tweeted last week that Twitter shareholders should get a say on his proposed deal irrespective of what the company’s board thinks. This was interpreted by some investors as a hint that he would be willing to press on with a hostile bid.

TRY TO NEGOTIATE WITH MUSK

Twitter can offer to open its books to Musk, hoping that this would lead to a better offer. This would test Musk’s description of his $54.20 all-cash bid as his “best and final offer”. The Tesla Inc chief executive, whose net worth is pegged by Forbes at $265 billion, has not specified how much of his own fortune he would be willing to contribute towards a deal to acquire Twitter.

It is possible that Musk ends up partnering with private equity firms, sovereign wealth funds, or other deep-pocketed investors to reduce his own equity check in any transaction. He said last Thursday that he wanted as many existing Twitter shareholders to roll their stakes in a deal as legally possible.

SOLICIT BIDS FROM OTHER PARTIES

Twitter’s board can explore strategic alternatives, which would involve contacting companies, private equity firms, and other potential suitors to gauge their interest in a deal. The benefit of this option is that it could identify a better deal or put pressure on Musk to raise his offer.

The downside is that it could raise the hopes of many investors that Twitter will sell itself, pressuring it to negotiate a deal from a position of weakness, given that its shares are trading at just a little over half of what they were worth a little over a year ago.

Twitter could choose to pursue a similar deal now with another party, raising more cash and avoiding an outright sale.

Opinions

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News Source / The Express Tribune: April 18, 2022

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