Earlier in the year tech tycoon Elon Musk started to boast about purchasing Twitter. After lengthy conversations, and a few odd tweets posted by Musk, the deal seemed to be going ahead – until now.
Musk began to purchase Twitter stock in January and in March he announced a 9.2% stake within the company which led to him being invited to join the board of directors – to which he swiftly declined. Following this, the he offered to pay US$54.20 per share to buy the whole of Twitters stock to which Twitter responded with by introducing a Shareholder Rights Plan. The back and forth continued when Elon brought forward his plan to finance a US$44 billion deal which included US$21 billion of his own funds. Twitter accepted this offer and the purchase of Twitter as a whole was to go ahead.
The issue with this investment is that over the course of the several month long financial joust, technology stocks had crumbled, especially media stock. In addition to this, Musk had began to claim and argue that 20% of accounts on Twitter were fake and that he would not go ahead with the deal unless there was sufficient evidence proving that less than 5% of users were fake – this ultimately made no sense.
The Tesla CEO’s deal was never based on subscriber count, it was based on what he could do with the platform as one of the biggest names in tech. Looking from the outside in, shareholders within Tesla are bound to be nervous regarding the move. They are inevitably going to worry that all of the CEO’s attention will turn to Twitter rather than spending his time revolutionising vehicles.
With beginning this deal means that there was always going to be a way out no matter what. In this case, the way out is a US$1 billion termination fee. With Musk seemingly laying the foundations to back out and with Twitter shares being worth 30% of what Musk is/was willing to pay, it would be in his and Twitter’s best interest to cut their losses and move forward.
With a large media company such a Twitter and someone like Elon Musk, there will always be some sort of deal on the table – it is whether both parties follow through that will truly have an impact.
To read about Tej Kohli as an investor visit Kohli Ventures.
Find out more about Tej Kohli: Tej Kohli the technologist investing in human triumph, Tej Kohli the philanthropist trying to cure the developing world of cataracts and Tej Kohli the London tycoon with a generous streak.