Michelle Chapman, Matt O’Brien and Tom Crischer
In just ten days, Tesla CEO Elon Musk has gone from a popular Twitter participant to the company’s largest single shareholder in a potential social platform owner – a whirlwind of activity that could dramatically change the service, given Musk’s self-identification as free absolutist speech.
A statement on Twitter on Thursday revealed that the sometimes bizarre billionaire offered to buy out the company for more than $ 43 billion, saying the social networking platform “needs to be turned into a private company” to build trust with its users.
“It’s not a way to make money,” Musk said during a stage interview at TED 2022 on Thursday. “Having a public platform that is highly trusted and widely inclusive is extremely important for the future of civilization.”
Like other platforms, Twitter has imposed restrictions on tweets over the past few years that threaten violence, incite hatred, bully others and spread misinformation. Such rules played a key role in Twitter’s decision to ban former President Donald Trump following the January 6, 2021 Capitol uprising. Musk described in detail some specific potential changes on Thursday – for example, preferring temporary rather than permanent bans – but mostly described his goal in broad and abstract terms.
While the Twitter user base remains much smaller than that of competitors such as Facebook and TikTok, the service is popular with celebrities, world leaders, journalists and intellectuals. Musk himself has more than 81 million followers, competing with pop stars like Lady Gaga.
Shares of Twitter went from hand to hand at $ 44.98 in trading in the afternoon, down about 2% and well below Mask’s offer of $ 54.20 per share. This is usually a sign that some investors doubt the deal will happen. Shares are still falling from a 52-week high of about $ 73.
Musk called the price his best and latest offer, though he did not provide details on funding. The offer is not mandatory and is subject to funding and other conditions.
“I believe that freedom of speech is an imperative of society for a functioning democracy,” Musk said in a statement. “Now I understand that the campaign will neither prosper nor serve this public imperative in its current form. Twitter needs to be turned into a private company. ”
Twitter has said it will decide whether accepting the offer is in the best interests of shareholders.
If Musk decides to try to take over, he could probably raise the roughly $ 43 billion he needs to do so, perhaps by borrowing billions using his stakes in Tesla and SpaceX as collateral.
Much of Mask’s fortune, which Forbes estimates at nearly $ 265 billion, is tied to Tesla shares. The company allows its executives to use shares as collateral for a loan of money, but limits the loan to 25% of the value of the mortgaged shares.
Data provider FactSet says Musk owns 172.6 million shares worth $ 176.47 billion. According to a statement from a Tesla trustee filed in August, just over 51% of its stake is already pledged. This means that Musk can use the remaining stake as collateral for a loan of about $ 21.5 billion. He could also borrow his stake in private SpaceX.
Wedbush analyst Dan Ives expects Musk to use his assets to borrow $ 15 billion to $ 20 billion, and the rest will come from cash and investment banks or a group of investors. “I think there will be a number of banks waiting to help Mask in his application,” Ives said.
At a TED conference, Musk said he has the money to buy a social networking platform. “Technically I could afford it,” he said to make the audience laugh.
In a note to investors, Ives wrote that “this soap opera will end with Musk owning Twitter after this aggressive hostile takeover of the company.” He believes other contenders or consortiums will find it difficult to speak, and said the Twitter board is likely to be forced to accept Mask’s offer or begin the process of selling the company.
In recent weeks, Musk has revealed in regulatory documents that he has been buying shares in almost daily batches since Jan. 31, bringing his share to about 9%. Only a set of mutual funds and ETFs Vanguard Group controls more shares of Twitter. A lawsuit filed Tuesday in federal court in New York alleges that Musk illegally delayed the disclosure of his stake in the social media company so he could buy more shares at lower prices.
The U.S. Securities and Exchange Commission could punish Mask for harming other investors by exposing Twitter’s share buyback for too long, but it is unlikely it will do anything to stop the takeover, said Chester Spet, a former SEC chief economist.
“It’s going to happen pretty soon,” said Spet, now a professor of finance at Carnegie Mellon University. The SEC, he said, “for the most part weighs the fact.”
The billionaire has been a vocal critic of Twitter, largely because of his belief that it does not conform to the principles of free speech. The social media platform has angered followers of Donald Trump and other far-right politicians whose accounts have been suspended for violating standards of content of violence, hatred or harmful misinformation. Musk has called himself an “freedom of speech absolutist,” but is also known for blocking other Twitter users who doubt or disagree with him.
After Musk announced his stake, Twitter quickly offered him a seat on the board provided he did not own more than 14.9% of the company, according to the document. But five days later the company said he refused. The decision coincided with a series of deleted and not-always-serious tweets from Mask that suggested major changes to the company, such as abandoning advertising – its main source of income – and turning its San Francisco headquarters into a homeless shelter.
The turn prompted CEO Parag Agraval to warn staff earlier this week that they would “distract” and “muffle noise and focus on work”.
Twitter didn’t go as well as its competitors on social media, and lost money last year. The company reported a net loss of $ 221 million over 2021, largely due to a settlement of a lawsuit filed by shareholders who said the company had misled investors as to how much its user base grew and how much users interacted with its platform. Its co-founder Jack Dorsey resigned as CEO in late November and was replaced by Agraval.
Musk and Tesla in 2018 agreed to pay $ 40 million in civil fines and for Musk to approve his tweets to corporate attorneys after he tweeted that he has the money to make Tesla private at $ 420 per share. That didn’t happen, but the tweet caused a jump in Tesla’s share price. Mask’s latest problem with the SEC could be its delay with notifying regulators of a growing stake in Twitter.
Both of his comments in 2018 about Tesla’s private attitude of $ 420 per share, as well as his latest bid to make Twitter private at $ 54.20 per share, seemed to jokingly refer to the number 420, a slang reference to marijuana.
“I guess he’s free to name any price he wants,” Spet said.