Now that Elon Musk has offered to buy Twitter, what happens next?

ByDonald L. Leech

Apr 14, 2022

Elon Musk has offered to buy Twitter for a valuation of around $43 billion. Here’s what will – or could – happen next:

The board reviews the offer. The board will work with its advisers at Goldman Sachs to consider Mr. Musk’s offer. They will need to consider, among other things, whether the deal fairly values ​​the company and whether Mr. Musk has the funding to cobble together a deal.

The board can’t just decide it doesn’t like Mr. Musk as a suitor, but can “propose reasons why it doesn’t like the offer”, such as his ability to fund it, said Steven Davidoff Solomon, a professor at the University of California, Berkeley School of Law.

The council announces its decision. The council will probably take a few days to consider the offer. If he rejects the offer, he can do one of the following: he can put in place a defense mechanism known as the poison pill that limits the ability of Mr. Musk, and all other shareholders , to buy Twitter shares on the open market. .

Once done, it could still decide to sell, but without the pressure of Mr Musk – or any other suitor – threatening to acquire it by buying a significant number of shares on the open market.

There are reasons why Twitter may choose not to do the poison pill. He might be wary of potential criticism that a poison pill is deflecting concerns from a very vocal member of his community.

Similarly, Mr. Musk, whose last reported stake in Twitter was just over 9%, has an incentive to keep his Twitter shareholding below 10%. Once he reaches this threshold, he is limited in how quickly he can sell the business.

Assuming Twitter rejects the offer, Mr Musk could increase his offer – although he has previously said it was the best and most definitive. He could also present the offer directly to other shareholders, through what is known as a tender offer, in which he would buy shares from other shareholders.

However, at least one shareholder has already said the offer undervalues ​​the company.

The board is potentially looking for a white knight. “Twitter has basically been on sale since its IPO,” said Howard Berkenblit, who leads the capital markets group at law firm Sullivan & Worcester.

Mr. Musk’s latest activity has most likely heightened Twitter’s interest and receptivity to a deal. Some private equity firms may be put off by Twitter’s limited cash flow, but a number of tech companies might take a look, given the heightened interest in the giant’s power and reach. social media.

There could be big contenders. Recall that Microsoft, owner of LinkedIn, and Oracle have both fought over an agreement with the video-sharing company TikTok. Still, potential antitrust considerations would likely be a strong deterrent, given the Biden administration’s scrutiny of big tech deals.