Twitter, Elon Musk, and 𝕏

SCANALYZER The Happening World
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This is what I was indicating in the first post. Everyone that wants Twitter to stop the censorship should buy some shares and give their proxy to Musk. I will be purchasing today with the hope I can help. This is a better investment than any political contribution. However, institutions own 97 percent of the float so it will likely fail.

A critical reform that isn’t on the radar is to change how passive investment works. The fact that a passive fund gets the voting power needs to change. The passive funds in my opinion are simply brokers or intermediaries that allow people to buy shares. Therefore, no passive fund should get to vote shares and the vote should pass through to the real owner.

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We have to wait until Wednesday (4/20)…

Matt Levine tweeted Monday morning to point out that two (everyone?) can play the cryptic numerological references

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The WSJ broke a story Monday reporting that Apollo Global is considering joining the bid for Twitter.

I won’t be surprised if we will soon learn that Musk and Apollo orchestrated this: have Elon front the stalking horse offer, with the expectation it will precipitate a move by the board. The WSJ story speculates Apollo might be interested in Twitter on account of having bought the husk of Yahoo from Verizon back in September 2021. If true, this will help Musk’s offer look a lot better to a lot of existing Twitter shareholders.

Was Dorsey in on this too? Back in early December, there was no shortage of speculation his sudden decision to leave had something to do with possibly getting fired (again) or forced out (source). His recent public statements did not come across as ringing endorsements for the board either (source)

Dorsey labeled the board as “consistently the dysfunction of the company” and said he agreed with venture capitalist Gary Tan’s statement that a badly run board “can literally make a billion dollars in value disappear.”

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On 2022-04-17, Twitter co-founder and former CEO “Homeless Jack” Dorsey tweeted that the Twitter board has “consistently been the dysfunction of the company”.

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Dorsey remains a member of the Twitter board.

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Elon Musk has filed another amended SEC Schedule 13D [PDF, 115 pages] dated, of course, 2022-04-20, which states:

The Reporting Person is seeking to negotiate a definitive agreement for the acquisition of Twitter by the Reporting Person and is prepared to begin such negotiations immediately.

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Twitter has not responded to the Proposal. Given the lack of response by Twitter, the Reporting Person is exploring whether to commence a tender offer to acquire all of the outstanding shares of Common Stock (together with the associated rights issued pursuant to the Rights Agreement (the “Rights” and, together with the Common Stock, the “Shares”)) that are issued and outstanding (and not held by the Reporting Person) at a price of $54.20 per share, net to the seller in cash, without interest and less any required withholding taxes, subject to certain conditions (the “Potential Offer”), but has not determined whether to do so at this time.

To finance the Proposed Transaction or a Potential Offer, entities related to the Reporting Person have received commitment letters committing to provide an aggregate of approximately $46.5 billion as follows:

(i) A debt commitment letter, dated April 20, 2022 (the “Debt Commitment Letter”), from Morgan Stanley Senior Funding, Inc. and certain other financial institutions party thereto …

(ii) A separate debt commitment letter, dated April 20, 2022 (the “Margin Loan Commitment Letter”), from Morgan Stanley Senior Funding, Inc. and certain other financial institutions …

(iii) An equity commitment letter, dated April 20, 2022 (the “Equity Commitment Letter”), from the Reporting Person pursuant to which the Reporting Person has committed to provide equity financing for the Proposed Transaction or the Potential Offer sufficient to pay all amounts payable …

This is a full-blown skeleton tender offer, not yet declared activated, but with funding, structure, and terms spelled out.

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Full disclosure – based upon a comment on this blog , I purchased one share of TWTR (so I have proxy voting privileges).

Game on!

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It also, unless they’ve changed the rules since I was involved in this stuff, gives you the right to attend the annual meeting in person. If the annual meeting ends up being an old-fashioned on-the-ground proxy fight, that might be a show worth seeing.

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Glenn Reynolds, law professor and Instapundit, writes in the New York Post, “Maybe Elon Musk should give up on Twitter — and let it destroy the woke”.

You see, Elon Musk would be good for Twitter, making it a better, more wholesome place. But set against that is the obvious reality that Twitter has been terrible for the left and its institutions.

Twitter isn’t reality. The vast majority of Americans don’t care about what happens on Twitter. The views expressed there — in favor of “wokeness,” critical race theory and trans issues — don’t reflect the views of most Americans. But the people running America’s institutions, and the left, act as if Twitter is reality.

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Musk is exactly right. Wokeness is a “mind virus,” a toxic idea that spreads from one person to another like a zombie plague. It makes you stupid and removes concern for your well-being.

And as I wrote in “The Social Media Upheaval,” Twitter is the main vector by which this virus is spread. But as long as it’s destroying the left, is it really a good idea to stop it?

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He can still go scorched earth by pointing out the lies and hypocrisy. He could start by offering to sell his shares for $54.20 to all those who said they were worth much more.

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Reuters reports, “Twitter, under shareholder pressure, begins deal talks with Musk”.

Twitter Inc kicked off deal negotiations with Elon Musk on Sunday after he wooed many of the social media company’s shareholders with financing details on his $43 billion acquisition offer, people familiar with the matter said.

The company’s decision to engage with Musk, taken earlier on Sunday, does not mean that it will accept his $54.20 per share bid, the sources said. It signifies, however, that Twitter is now exploring whether a sale of the company to Musk is possible on attractive terms, the sources added.

Musk, chief executive of electric car giant Tesla Inc, has been meeting with Twitter shareholders in the last few days, seeking support for his bid. He has said Twitter needs to be taken private to grow and become a genuine platform for free speech.

Many Twitter shareholders reached out to the company after Musk outlined a detailed financing plan for his bid on Thursday and urged it not to let the opportunity for a deal slip away, Reuters reported earlier on Sunday.

The article notes:

One silver lining for Twitter’s board is that Musk’s offer did not appear to convert much of his army of 83 million Twitter followers into new shareholders in the San Francisco-based company who could back his bid, the sources said.

Twitter’s retail investor base has increased from about 20% before Musk unveiled his stake on April 4 to some 22%, according to the sources.

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The discussions could be CYA.

Not my practice area, but, on the one hand, a failure to pursue what appears to be the best offer available would be argued by shareholders as a per se breach of duty.

On the other hand, at least going through the motions would be argued by the board as prima facie evidence of due care/exercise of business judgement.

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The current freak out is pretty Amazing. @MrAndyNgo is documenting it. This may be the best reaction.

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That bozo needs deplatforming due to misuse of hashtag.

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This guy should know better than to criticize this stunning and brave African-American.

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Multiple sources are reporting Twitter and Elon Musk have reached a deal for an acquisition at the offer price, to be announced after the close of the market today. These reports cite the Wall Street Journal as the source, but I cannot find any such statement on any direct WSJ source.

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Another possibility I’ve heard today is that since Twitter is scheduled to report earnings and financials after the market close on Thursday, 2022-04-28, and there have been rumours that the report may “disappoint” analysts’ expectations, the board is motivated to take Musk’s offer while it is on the table. If they refuse it or delay, the earnings come in low, and the stock tanks as Netflix did, then Musk withdraws his offer or re-issues it at a substantially lower price, the board would be wide open to shareholder suits for turning down an above-the-market offer while it was available.

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WSJ reports Twitter accepted Musk’s offer. Ball in his court. By some estimates, he stands to lose close to $1B if he pulls out now.

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Last Thursday, Aswath Damodaran published his updated valuation for Twitter, using financial data as of April 4, when Musk announced his initial position.

I valued Twitter on April 4, at about the time that Musk announced his 9.2% stake, updating my story to reflect a solid performance from the company in 2021, and with Parag Agrawal, its newly anointed CEO:

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Spreadsheet with Twitter Status Quo Value

In my story, which I view as upbeat, given Twitter’s inability to deliver on operating metrics in the last decade, I see continued growth in revenues, with revenues reaching almost $13 billion in 2033, and a continued increase in operating margins to 25%, not quite the levels you see at the dominant online advertising players (Facebook and Google), but about what you would expect for a successful, albeit secondary, online advertising platform. (Note that I am capitalizing R&D expenses to give the company healthier margins right now, to begin my valuation). The value per share that I obtained was about $46, $ 4 higher than the prevailing stock price, but below Musk’s acquisition offer of $54.20.

To the critique that revenue growth could surprise and that margins could be higher, my answer is of course, and to incorporate the uncertainty in my inputs, I fell back on one of my favored devices for dealing with uncertainty, a Monte Carlo simulation. I picked three variables, the revenue growth over the next five years, the target operating margin and the initial cost of capital, to build distributions around, and the results of the simulation are below:

The median value in the simulation is $45.17, close to the base case valuation, but at least based on my estimates, Musk’s offering price is at the 75th percentile of value. It is possible that the value could be higher but making that is not a particularly strong argument to make, if you are Twitter’s board.

If I am reading this correctly, Musk’s offer is on the high side if one considers only the underlying financials of Twitter along with other generous assumptions. In his post, Damodaran goes on to reflect on other factors.

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Talk about a tweet that did not age well…

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