Acquiring Twitter in under 280 Characters: The Terms of Musk’s Takeover

Elon Musk’s unorthodox bid for Twitter has taken flight as the world’s richest man has inked a $44 billion deal to acquire the social networking giant. The all-cash merger will take Twitter private, placing “the digital town square where matters vital to the future of humanity are debated” under the ownership of Musk’s X Holdings I, Inc.  

The final agreement includes both a termination fee and a reverse termination fee where Twitter or Musk would owe the other $1 billion if they walk away from the deal under specified circumstances. Historically, only about 20% of deals contain both a termination fee as well as a reverse termination fee. The mean termination fee is approximately 3% of the transaction value while the mean reverse termination is 4.75%. This deal’s termination fees of just over 2% is low by historical standards. But Musk is not one to walk away from his calls to make Twitter into a “an inclusive arena for free speech.” 

Musk has a flair for flouting convention, whether he is reinventing transportation, drilling tunnels, or making concrete strides toward visiting Mars – and now he has reimagined hostile takeovers. Musk began earlier this month when he announced his 9% stake in the company on April 4, becoming the company’s largest shareholder. This stirred controversy immediately, not only because of the ramifications for the platform’s speech regulation but also because Musk purportedly filed the incorrect disclosure forms with regulators that also miscounted his number of shares. The Securities and Exchange Commission (SEC) previously fined Musk $40 million and forced him to step down as chairman of Tesla over a 2018 tweet about taking the transportation company private. 

On April 5, Twitter announced that Musk would join its board and the company even completed his background check. But hours before making it official, Musk made an about face and decided against joining the board, about which Twitter CEO Parag Agrawal wrote, “I believe this is for the best.” It soon came to light that Musk had grander ambitions.

That Thursday, Musk then tweeted of his intentions to acquire the whole company for a 38% premium over the stock price on April 3, the day before Musk revealed his stake in the company. While he is the richest man in the world and has a net worth valued at approximately $240 billion, much of that wealth is tied up in Tesla and other stocks, so he lacked the liquidity to purchase Twitter outright, and admitted that afternoon, “I’m not sure I’ll actually be able to acquire it.”

But just one week later, Musk dropped the next bombshell when he revealed he had secured financing from Morgan Stanley. Twitter responded by adopting a poison pill to help block any majority stake. But the company’s bankers projected that the company would be hard pressed to drive the share price above Musk’s $54.20 per share offer and the board of directors came around to the idea. 

Source: Bloomberg, data is normalized to a level of 100

“Twitter has extraordinary potential,” Musk wrote to Twitter’s leadership, promising, “I will unlock it.” And if Tesla’s growth is an indication, he has the resources to accomplish just that.