Tesla CEO Elon Musk’s unexpected $43 billion unsolicited offer for Twitter sparked a turbulent week for the social media company and its investors. Friday’s “poison pill” via Twitter’s board was enough to stop Musk from his tracks.
It’s anybody’s guess what will happen next. FOX Business dives deep into the latest developments as well as what analysts and investors are predicting.
FOX Business’ Dan Ives, a Wedbush securities analyst, said that Twitter’s attempt to stop Musk taking over is a “predictable defensive move” that won’t be seen positively by shareholders due to the possibility of dilution.
Elon Musk gestures during his speech at a press conference held at SpaceX’s Starbase facility in South Texas near Boca Chica Village on February 10, 2022. (Photo by JIM WATSON/AFP via Getty Images / Getty Images.
The plan is sometimes referred to as a poison pill. Shareholder rights will be exercisable when an entity, person, or group acquires beneficial ownership in excess of 15% of Twitter’s outstanding common shares in a transaction that has not been approved by the board. Existing Twitter shareholders, except for the person, entity, or group that triggers the plan, would be able to purchase additional common stock at a discount if the rights are made exercisable. Musk currently holds a 9.2% share in Twitter.
Ives stated that “The Board has its back against the wall” and Musk and shareholders would likely contest the validity of the poison pill in court. We believe Musk and his team anticipated this poker move, which will be seen by the Street as weakness rather than strength.
Ives states that Musk will have to provide details about his financing and return to Twitter’s board with an official response. He expects that Twitter will start a process to find other buyers.
Scott Redler, chief strategist at T3 Trading, believes that investors should be long Twitter. He argues that Twitter is an “undervalued” asset and poorly managed that could become a platform that benefits society.
Twitter vs Elon Musk: Can he strike a deal?
Andrew Boone, equity research analyst at JMP Securities, and Scott Redler, T3 Trading’s CSO, discuss the bid by the billionaire entrepreneur for the social media company on ‘The Claman Countdown.
“I don’t believe Twitter should be a privately owned company. Elon should be on board, I believe. Redler said that it would have been better if he had bought 14% so he could shake the tree.” Redler spoke to “The Claman Countdown,” on Thursday. I think the company could be run more efficiently. I believe that the features could have been updated more frequently. They could attract more users. They could make more. That’s what Elon tried to do.
Redler says, “But now, with this $54 bidding, it just wasn’t enough. Now it’s turning into a little bit more of a mishmash, where the market does not believe it, and the board doesn’t know what to make. He might come in higher, even though he stated best and final, but that is never really best or final.” Redler says that he has created a precarious scenario where it will be interesting to see how everything turns out.
Doug Anmuth, a JPMorgan analyst, stated that Musk’s offer was “credible” as it “represents an additional 54% from the price TWTR traded before he started buying shares.” He acknowledges however that the offer is still well below the March 2021 highs. The stock is still rated “overweight” by the firm.
Anmuth stated in a Thursday note that the shares could have a significantly higher upside if management can execute its plan to create new products, grow the user base by 20% and establish direct response advertising. We don’t expect the board to accept the offer.
Mark Kelley, a Stifel analyst, believes that the bid “sets an immediate ceiling on shares and detaches the company’s fundamentals and presents significant downside risk if Musk decides not to accept his offer or downgrade his stake.” Stifel has downgraded Twitter stock from “hold to sell” and warns that rejections could lead to Twitter shares “selling off dramatically.”
Jeffries maintains a “hold” rating on Twitter stock and notes that a selloff of more 20% on a rejected Twitter offer would “definitely be valuable to a strategic investor.”
According to Brent Thill, a Jeffries analyst, “This could be a positive outcome since TWTR would prefer a consortium rather than a single owner,” he told clients.
Thill believes that Twitter will be seeking at least $60 per share.