Acquisition of Twitter by Elon Musk

Acquisition of Twitter by Elon Musk

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Initiator	Elon Musk
Target	Twitter, Inc.
Type	All-cash full acquisition
Cost	US$44 billion
Initiated	April 14, 2022

On April 14, 2022, business magnate Elon Musk offered to purchase American social media company Twitter, Inc., for $43 billion, after previously acquiring 9.1 percent of the company's stock for $2.64 billion, becoming its largest shareholder. Twitter had then invited Musk to join their board of directors, which Musk at first accepted before subsequently declining. Twitter then announced a "poison pill" strategy the next day. On April 25, Twitter's board of directors unanimously accepted Musk's buyout offer of $44 billion, with the company set to be privatized. As of May 2022, the acquisition is pending approval from regulators and shareholders. The buyout has received praise from most conservatives and Republicans for Musk's planned reforms and vision for the company, while also drawing criticism from liberals, Democrats, and far-leftists over fears of a potential rise in disinformation and harassment on the platform.

Prelude

Background

See also: Elon Musk § Twitter

Elon Musk published his first tweet on his personal Twitter account in June 2010, and had more than 80 million followers at the time of the purchase. In 2017, in response to a tweet suggesting Musk buy Twitter, he replied, "How much is it?" On March 24, 2022, Musk began tweeting statements critical of Twitter, polling his followers on whether Twitter adhered to the principle that "free speech is essential to a functioning democracy".

Early developments

Musk had begun to buy Twitter shares on January 31, 2022. On April 4, Musk announced that he had acquired 9.2 percent of Twitter's stock for $2.64 billion, making him the company's largest shareholder. Following the announcement, Twitter's stock experienced its largest intraday surge since the company's initial public offering (IPO) in 2013, rising by as much as 27 percent. On April 5, Twitter invited Musk to join the company's board of directors, which Musk accepted. The position would have prohibited Musk from going beyond a 14.9 percent ownership stake. Four days later, before Musk's appointment was set to take effect, Musk reversed his decision to join the board after publishing several tweets critical of the company.

Buyout

Takeover bid

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Elon Musk Twitter @elonmusk

I made an offer
https://sec.gov/Archives/edgar...

April 14, 2022

On April 14, Musk made an unsolicited and non-binding offer to purchase the company for $43 billion, or $54.20 per share, and take it private. The bid was described as a hostile takeover attempt, with the company responding that the board would "carefully review the proposal to determine the course of action that it believes is in the best interest of the Company and all Twitter stockholders". In a TED interview, Musk stated that he believed in the company's "potential to be the platform for free speech around the globe", calling free speech a "societal imperative for a functioning democracy" and insisting that he had not made the offer to increase his wealth. According to critics, however, he showed little interest in fighting government censorship around the world, saying that "Twitter should match the laws of the country", instead showing most concern at Twitter's moderation policies. The price of $54.20 per share is believed to be a reference to 420, a slang term in cannabis culture for marijuana consumption.

On April 15, Twitter's board of directors announced a "poison pill" strategy, which would allow shareholders to purchase additional stock in the event a hostile takeover should occur; the plan will expire on April 14, 2023. On April 20, Musk disclosed that he had secured financing provided by a group of banks led by Morgan Stanley, Bank of America, Barclays, MUFG, Société Générale, Mizuho Bank, and BNP Paribas, for a potential tender offer to acquire the company. The funding included $7 billion of senior secured bank loans; $6 billion in subordinated debt; $6.25 billion in bank loans to Musk personally, secured by $62.5 billion of his Tesla stock; $20 billion in cash equity from Musk, to be provided by sales of Tesla stock and other assets; and $7.1 billion in equity from 19 independent investors.

The initially proposed $13 billion in money borrowed by Twitter is equivalent to seven times the company's 2022 projected operating cash flow; some banks found that multiple too risky and opted to participate only in the $12.5 billion margin loan to Musk. The debt is estimated to cost Twitter approximately $1 billion in annual interest and fees. Two days after announcing his bid, Musk registered three holding companies under the name "X Holdings" in preparation for his takeover. Tesla shares fell 12 percent on the day after the acquisition was announced, amid smaller declines in the broader markets. Musk incurred a $21 billion paper loss that day. Within three days after Twitter agreed to be acquired, Musk had sold $8.5 billion of his Tesla shares.

Acquisition announcement

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Elon Musk Twitter @elonmusk

For Twitter to deserve public trust, it must be politically neutral, which effectively means upsetting the far right and the far left equally

April 27, 2022

On April 24, multiple outlets reported that Twitter was in final negotiations to accept Musk's offer, with a deal expected to be reached by the next day. However, Reuters cautioned that the deal could still fall apart at the last minute. On April 25, following reports that Twitter was poised to accept Musk's offer, Twitter shares rose by 5 percent.

Twitter's board publicly and unanimously accepted the buyout offer on April 25 for $44 billion, and Twitter will become a private company once the transaction is completed sometime in 2022. The deal will require shareholder and regulatory approval before it can be finalized, though analysts believed it was unlikely to be challenged by regulators. If Musk backs out of the acquisition, he will be required to pay Twitter a $1 billion breakup fee. Twitter CEO Parag Agrawal will receive $39 million from the buyout, while Twitter's co-founder and former CEO Jack Dorsey will receive $978 million. Musk is expected to serve as interim CEO in the months after the takeover is completed. Tesla's stock sank by more than $125 billion the next market day, causing Musk to lose approximately $30 billion of his net worth.

After the acceptance was announced, Musk stated that his first plan is to make the algorithm that ranks tweets in the content feed open source, in order to increase transparency. He has also stated his intention to remove spambots and "authenticate all real humans". He suggested that he might convert Twitter's San Francisco headquarters into a homeless shelter. Musk does not have confidence in Twitter's corporate management, and he published tweets critical of decisions made by Twitter executives such as Vijaya Gadde; Twitter users then harassed the executives using racist and sexist language. Former Twitter CEO Dick Costolo denounced Musk's criticism, while Agrawal stated that he was proud of Twitter employees "despite the noise" around the company.

On April 28, Twitter reassured advertising agencies that their work would not be seen next to offensive material. Musk had also discussed with bankers with the ideas of cutting jobs and costs, encouraging influencers to be creative, and adding subscription services to Twitter. On May 4, Musk was summoned by the Digital, Culture, Media and Sport Committee to discuss the effect of his buyout on free speech and "online harms". Musk further secured $7.1 billion in funding the next day, including from Oracle Corporation co-founder Larry Ellison, Saudi prince Alwaleed bin Talal bin Abdulaziz Alsaud, venture capital firms Andreessen Horowitz and Sequoia Capital, along with sovereign wealth fund Qatar Holding. The equity infusion reduced his original $12.5 billion personal bank loan to $6.25 billion and his required cash equity contribution from $21 billion to just under $20 billion. The involvement of foreign entities as independent investors could cause the transaction to face national security scrutiny by the Committee on Foreign Investment.

On May 11, The Wall Street Journal reported the Securities and Exchange Commission (SEC) and Federal Trade Commission (FTC) had opened investigations into events leading to the acquisition. The next day, Agrawal dismissed Twitter General Manager Kayvon Beykpour and revenue product lead Bruce Falck. On May 13, Musk stated that the deal had been put "on hold" following report that 5 percent of Twitter's daily active users were spam accounts, causing Twitter shares to drop more than 10 percent. Musk later clarified that he remained committed to the acquisition, and Agrawal stated that he expected the deal to close.

Reactions

Pre-announcement

Following Musk's induction to Twitter's board of directors on April 5, Agrawal wrote that he believed Musk's appointment would bring long-term value to the company, while Dorsey wrote that Musk "cares deeply about our world and Twitter's role in it". On April 11, Agrawal stated that he believed Musk's withdrawal from the board was "for the best", noting that the company would "remain open to his input". The next day, Twitter shareholders sued Musk for allegedly manipulating the company's stock price and violating SEC rules.

Musk's offer was met with both praise and criticism. On April 14, Twitter employees expressed concern with Musk's views on free speech. Media outlets expressed concerns that his proposed changes to Twitter would result in an increase in disinformation and harassment. Jim Cramer of CNBC opined that the Twitter board would have "no choice" but to reject Musk's offer due to potential personal liability faced by the board members. On April 19, the National Urban League urged Twitter to turn down Musk's takeover bid, warning of potentially negative consequences on users' civil rights.

Conservative and Republican commentators and politicians in the U.S. who believed Twitter discriminated against right-wing speech expressed enthusiasm for Musk's proposed changes. On April 22, U.S. House Republicans demanded that Twitter's board preserve all records pertaining to Musk's takeover proposal, which sets the stage for a potential congressional probe following the 2022 midterms. Jimmy Patronis, the Chief Financial Officer of Florida, praised Musk's offer and was critical of Twitter's "poison pill" strategy. According to a poll conducted by Harvard University's Center for American Political Studies (CAPS) and the Harris Poll, 57 percent of American voters approved of Musk's purchase of Twitter.

Post-announcement

Agrawal applauded the purchase and assured employees that no layoffs were planned at that time. Dorsey endorsed the sale, saying that "taking [Twitter] back from Wall Street is the correct first step" and that he trusted Musk to be the new owner of the company. Twitter general counsel Vijaya Gadde was criticized by Musk, cried during a meeting after the announcement, and was subjected to online ridicule. Agrawal led an all-hands meeting on April 29 to address concerns raised by employees.

Republican lawmakers in the U.S. Congress such as Jim Jordan, Yvette Herrell, Marsha Blackburn, and Ted Cruz praised the deal, calling it a restoration of free speech. Meanwhile, Democratic lawmakers such as Pramila Jayapal, Jesús García, Marie Newman, and Mark Pocan criticized Musk and the buyout. Former U.S. President Donald Trump expressed approval with the deal but stated that he would not rejoin the platform, even if he is unbanned, due to his preference for his own social media platform, Truth Social. Musk later indicated his intention to reverse Twitter's ban on Trump. Mexican President Lopez Obrador stated that he hoped Musk would rid Twitter of "the corruption that's there, manipulation with bots". By April 27, 30,000 new users had joined open-source Mastodon servers. Conservative Twitter accounts experienced a significant increase in followers, while liberal ones experienced a slight decrease. Many left-leaning users left the platform following the buyout.

Some LGBTQ+ users and activists have expressed apprehension about the deal based on tweets by Musk mocking transgender people and fear that the re-platforming of suspended Twitter accounts will lead to a rise in online harassment and hate speech. Followers of the QAnon conspiracy theory celebrated the purchase, believing Musk's free speech approach would allow them back onto the platform. Federal Communications Commission (FCC) commissioner Brendan Carr responded to calls for the agency to block the purchase by saying that it has no authority to do so, calling such requests "absurd".

Henrik Fisker, co-founder of electric vehicle maker Fisker Inc. and a rival of Musk's, left Twitter shortly after the acquisition announcement. Amazon founder Jeff Bezos questioned whether Tesla's business interest in China would give the Chinese government leverage over Twitter via Musk, before answering that it would "probably not". Microsoft co-founder Bill Gates questioned if Musk would allow the spread of public health misinformation, including vaccine misinformation. Thierry Breton, the European Commissioner for Internal Market, emphasized that "any company operating in Europe needs to comply with [their] rules", while the European Union announced that new online rules will "overhaul" the digital market and Tech Giants.

Analysis

Elizabeth Lopatto of The Verge predicted that a Musk takeover would lead to a mass employee exodus and a possible reinstatement of Trump's Twitter account. After the acquisition announcement, Alex Werpin of The Hollywood Reporter warned of widespread repercussions. Greg Bensinger of The New York Times alleged that Musk's acquisition was "about controlling a megaphone" rather than free speech, while The Washington Post raised concerns with Musk's calls for free speech. Equity analyst Angelo Zino believed that Twitter's decision may have stemmed from their realization that alternative bidders would be unlikely to emerge due to social media companies' declining asset prices. Kevin D. Williamson of National Review likened Musk's purchase of Twitter to the Donald Trump 2016 presidential campaign, labeling it a publicity stunt.

Kate Klonick, a law professor at St. John's University, said that to allow "all free speech" to exist on Twitter would open the door to the spread of pornography and hate speech. Don Pittis of CBC News noted the controversy associated with the wealthy gaining control of media platforms. Media Matters for America and the Australian Strategic Policy Institute suggested that China could use its influence to extract political concessions or manipulate Twitter due to Musk's ties with China. Analyst Mike Proulx of Forrester Research cautioned that other companies may leave Twitter if Musk loosens its moderation policies. Joan Donovan, research director at Harvard's Shorenstein Center on Media, Politics and Public Policy, stated that the lack of moderation on Twitter would lead to online harassment. Robby Soave of Reason argued that Musk's purchase would not threaten Twitter or democracy, suggesting that those "overstating Twitter's importance" were "Musk's critics in progressive and mainstream media."

Bitcoin investor Roger Ver and Coinbase CEO Brian Armstrong welcomed the buyout, citing the potential for reduction of perceived censorship on Twitter. Lindsey Bakes of Deseret News wrote that Musk could integrate cryptocurrency within Twitter.

External links

• Press release