Twitter Inc (TWTR.N) began talks with Elon Musk on Sunday after he wooed several of the social media company’s shareholders with financial specifics on his $43 billion purchase bid.
According to the sources, the company’s decision to speak with Musk earlier on Sunday does not imply that it will accept his $54.20 per share offer. It does, however, imply that Twitter is currently looking at the possibility of selling the firm to Musk on favorable terms, according to the sources.
Musk, the CEO of electric carmaker Tesla Inc (TSLA.O), has been meeting with Twitter shareholders in recent days to seek support for his takeover attempt. He believes that in order for Twitter to thrive and become a genuine venue for free speech, it needs to be taken private.
Following Musk’s Thursday presentation of a comprehensive funding plan for his bid, several Twitter shareholders contacted the firm, urging it not to let the possibility for a transaction pass them by, according to media reports earlier on Sunday.
According to the sources, Musk’s insistence that his bid for Twitter is his “best and final” has become a stumbling block in the transaction negotiations. Nonetheless, according to the sources, Twitter’s board of directors has opted to interact with Musk in order to learn more about his ability to close the purchase and possibly negotiate better terms.
According to the sources, Twitter has not yet determined if it will pursue a sale in order to put pressure on Musk to increase his offer. Because the deal conversations are private, those with knowledge of the situation declined to be identified.
According to one of the individuals, Twitter wants to learn more about any ongoing investigations into Musk by regulators, including the Securities and Exchange Commission (SEC), that could jeopardize the deal’s completion.
Musk, who settled claims that he misled investors by claiming four years ago that he had secured funds to take Tesla private, may have violated SEC disclosure regulations when he acquired a stake in Twitter early this year, according to securities lawyers.
According to the insider, Twitter is also looking into whether regulators in any of its key markets would object to Musk owning the company. According to the sources, if Twitter determines that selling to Musk is dangerous, it may demand a large break-up fee.
Following Musk’s approach, the social media business implemented a poison pill to prevent him from boosting his more than 9% ownership in the company above 15% without first striking an agreement with the board. Musk has responded by threatening to launch a tender offer in order to gain Twitter shareholder backing for his purchase.
According to the sources, Twitter’s board was concerned that unless it sought to negotiate a deal with Musk, many shareholders would support him in a tender bid.
While the poison pill would prohibit Twitter shareholders from tendering their shares, the firm is concerned that if it was revealed to be going against the wishes of many of its investors, it would significantly undermine its negotiating position, according to the sources.
Twitter and Musk representatives did not immediately reply to calls for comment.
According to the sources, Twitter shareholders’ price expectations for the acquisition differ substantially based on their investing style.
According to the sources, active long-term shareholders, who combined with index funds own the majority of Twitter stock, have greater price expectations, with some in the $60s per share. They’re also more likely to give Parag Agrawal, who took over as Twitter’s CEO in November, more time to improve the stock’s value, according to the sources.
On April 14, Saudi Arabia’s Prince Alwaleed bin Talal, a Twitter stakeholder, stated, “I don’t feel that Elon Musk’s suggested offer ($54.20 per share) comes near to the fundamental worth of Twitter given its growth possibilities.”
According to the sources, short-term investors such as hedge funds want Twitter to accept Musk’s offer or seek for only a tiny increase. According to the sources, some of them are concerned that a recent drop in the value of technology companies due to fears about inflation and an economic downturn makes it doubtful that Twitter will be able to deliver additional value to itself anytime soon.
“Take $54.20 per share and be done with it,” said Sahm Adrangi, portfolio manager at Kerrisdale Capital Management, a hedge fund that holds 1.13 million shares in Twitter, or 0.15 percent of the firm, and has been an investor since early 2020.
One bright lining for Twitter’s board is that Musk’s offer did not appear to convert many of his 83 million Twitter followers into new Twitter shareholders who may support his proposal, according to the sources.
According to the sources, Twitter’s retail investor base has grown from roughly 20% before Musk announced his position on April 4 to around 22%.