Dan Ives is the CEO and Senior Equity Research Analyst covering the technology sector at Wedbush Securities
‘Greed, for lack of a better word, is good’
That’s Gordon Gekko’s line from Wall Streetthe 1987 epic film about corporate raiders, starring Michael Douglas as the cruel investor and Charlie Sheen as the naive up-and-comer.
Gekko delivers the ‘greed’ line at a packed meeting for the fictional company Teldar Paper.
He is trying to convince shareholders that they will make more money on their investments if only they would join him in breaking control of the company away from its existing board of directors and handing it over to him.
It’s called a hostile takeover.
“The new law of evolution in corporate America seems to be the survival of the unfit,” says Gekko. “Well, in my book, you’re either doing it right or you’ll be eliminated.”
It’s an imperfect comparison, but it goes a long way toward explaining what’s likely to happen next time visionary billionaire Tesla and SpaceX CEO and serial tech entrepreneur Elon Musk sets up his sites to own Twitter.
Like Teldar in Wall Street – Twitter is an underperforming company.
Gekko, played by Michael Douglas (above), delivers the ‘greed’ line at a packed meeting for the fictional company Teldar Paper.
The 1987 epic film about corporate attacks features Michael Douglas (right) as the cruel investor and Charlie Sheen (left) as the naive up-and-comer.
It has lagged behind its social media competitors like Facebook, Instagram and TikTok.
Advertising is lacking, subscriber growth and revenue generation are disappointing, and increasingly divisive debates about censorship and freedom of expression are a constant PR nightmare.
Musk saw an opportunity to go to Twitter, and he took it.
Now this fight is likely to be very ugly (a very hostile takeover). And it will likely reach its crescendo at Twitter’s next shareholders’ meeting.
It all started on April 4, when Musk shocked the world with an announcement that he took a 9.2% stake in Twitter worth $ 2.89 billion.
In response, Twitter’s board offered Musk a seat that expires in 2024.
It was a friendly move (potentially an attempt at de-escalation) to embrace Musk with open arms, as a passive effort was only the beginning of Musk’s involvement.
The seat came with strings, of course.
Federal rules would have required Musk to keep his ownership level below 15%, and he would have to keep his criticism of the company quiet.
He was also to operate within the corporate culture of the board of directors and the company.
Musk did not find any of it appealing, and on Thursday he shocked the world again (though more predictably).
Twitter announced that they had received an offer from Musk to buy 100% of the company for $ 54.20 per share in cash or $ 43 billion in total.
The offer represents a premium of 38% per. share since the day before his announcement of ownership.
“This is not about economics,” Musk (above) said at the TED2022 conference in Vancouver. ‘My strong intuitive sense is to have a public platform that is maximally trusted and broadly inclusive is important for the future of civilization.’
“Twitter has become a kind of de facto town square, so it’s really important that people have both the reality and the perception that they are able to speak freely within the bounds of the law,” Musk said.
Twitter shares traded at $ 70 less than a year ago.
In the filing, Musk noted that he has no faith that Twitter’s current board is ready for the challenge of turning the company around.
‘… since I made my investment, I now realize that the company will neither thrive nor serve this societal demand in its present form. Twitter must be transformed into a private company, ‘he wrote.
Musk also noted that this would be his last offer.
In a typical negotiation tactic, Twitter’s largest shareholder, Saudi Prince Alwaleed bin Tala, rejected the offer. Shareholders want to drive a higher price.
Hours later, speaking at the TED2022 conference in Vancouver on Thursday afternoon, Musk fired back.
“This is not about economics,” Musk said. ‘My strong intuitive sense is to have a public platform that is maximally trusted and broadly inclusive is important for the future of civilization.’
‘Twitter has become a kind of de facto town square, so it’s really important that people have both the reality and the perception that they are able to speak freely within the bounds of the law.’
Right now, the Twitter board is meeting to consider Musk’s bid.
Their immediate next steps are predictable, but then it becomes more unclear.
Within the next 24 hours, Twitter will likely reject Musk’s offer – saying it underestimates the stock, and they will question whether Musk has the funding to handle this.
Musk was obviously ready for this.
He told the TED audience that he has a Plan B in case his offer is rejected and he insisted he had assets to fund this deal.
We anticipate that he will manage the financing through a combination of his cash and loans against his share in Telsa.
Then it becomes difficult for Twitter.
The board can not call it a day after rejecting Musk.
The clock has struck midnight for Twitter.
As a public company, the board of directors has a fiduciary duty to increase the value for the shareholders. If they leave a cash offer to the company on the table without presenting a reasonable alternative – they are inviting shareholder litigation.
The Board of Directors will approach outside investors and talk to top shareholders for a period of 30 to 45 days.
In a typical negotiation tactic, Twitter’s largest shareholder, Saudi Prince Alwaleed bin Tala (left), rejected the offer. Shareholders want to drive a higher price.
They are looking for someone or more likely a group to present them with a better deal than what Musk offers.
But it would be difficult for other bidders to come forward.
Microsoft is a possible choice, but they are already looking to buy Activision – a $ 70 billion deal.
Twitter may appeal to private equity investors or a consortium of the like, but again, Musk seems like the only game in town.
In the meantime, behind the scenes, Twitter is likely to negotiate with Musk to get more money and concessions.
If the board shuts him out completely, Musk will fight his battle in public to convince shareholders to leave the ship.
Already, we hear the rumble from Twitter employees and expect a stream of resumes out of the company if Musk takes over, but that’s not something the board should worry about.
They represent the shareholders, not the employees.
Bottom line – something must give.
Musk is completely serious about running Twitter, just as he is serious about SpaceX and Telsa.
The current board does not want Musk involved because they disagree on almost everything and his style is incompatible with their corporate culture.
Eventually, Wall Street wants Twitter to be sold.
They can not continue as they used to anymore.