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Elon Musk reached an agreement to buy Twitter (TWTR) for roughly $44bn (£34.6bn), promising to make online speech freer but still taking what he described as the “de facto public town square” private.
The deal will turn the world’s richest person into a social media baron, as Musk will have control over the social media network where he already one of its most influential users. Musk promised a more lenient touch to policing content on the platform.
Twitter said the transaction was unanimously approved by its board of directors and is expected to close in 2022, pending regulatory sign-off and the approval of shareholders.
But how did the Tesla and SpaceX CEO seal a deal to become Twitter’s new boss?
Anatomy of a bid: how it all unfolded
It took only three weeks of dramatic courtship and a change of heart at Twitter for Musk to secure his takeover approach.
The first step came as a surprise, as the billionaire first revealed a stake in the platform. On 4 April, a filing with the US Securities and Exchange Commission (SEC) showed that Musk had a 9.2% passive stake in micro-blogging site Twitter Inc as of 10 February 2022.
With the $3bn (£2.29bn) stake the now largest shareholder was invited to join the board. But the billionaire rejected the offer.
Had he taken a board seat, he would have been limited in how much of the company's shares he could own, with a 14.9% cap.
This led to analysts wondering if Musk had refused the position because of the cap. A week later, as markets still wondered about what was going on, the billionaire caught most by surprise by unveiling a $46bn bid for Twitter.
On 21 April, Musk revealed he had secured commitments for $46.5bn (£35.5bn) that would allow him to bypass Twitter’s board and go directly to the social media company’s shareholders with his takeover bid.
Shares in the social media platform rocketed on the back of the news, with Musk's offer price of $54.20 per share representing a 38% premium to the closing price on 1 April. The $54.20 share offer was widely interpreted as a reference to marijuana culture: 420 is used as a code for marijuana by some people.
Musk said he would personally provide $21bn of equity for the deal with another $12.5bn coming from margin loans, according to paperwork filed with the Securities and Exchange Commission.
However, since his offer, Twitter’s board of directors adopted a poison pill defence to protect the company from the Tesla and SpaceX chief executive.
The platform said: "The Twitter board of directors will 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."
The poison pill is another term for a shareholder rights plan, which allows investors to buy additional shares of the company’s stock at a discount.
This dilutes the value of each individual share amid concerns about an unwanted hostile takeover.
In Twitter’s case, if any shareholder accumulates a 15% stake in the company in a purchase not approved by the board of directors, other shareholders would get the right to buy additional shares at a discount, diluting the 9.2% stake Musk acquired.
The poison pill would have given shareholders more voting power while severely diluting Musk’s shares in the firm.
Twitter said the plan would “protect stockholders from coercive or otherwise unfair takeover tactics.”
But with funding lined up Twitter was under pressure from shareholders to entertain the offer and so company executives opened the door to negotiations.
Twitter announced it was ready to say yes to Musk, marking the end of three weeks of courtship on 26 April.
The two sides worked through the weekend to hash out a deal in which Musk plans to take Twitter private in a deal that values the company at $54.20 a share, or about $44bn.
The additional $1bn price tag is understood to reflect the purchase of additional shares revealed by Twitter.
“The Twitter board conducted a thoughtful and comprehensive process to assess Elon’s proposal with a deliberate focus on value, certainty, and financing,” said Bret Taylor, Twitter chair.
He added: “The proposed transaction will deliver a substantial cash premium, and we believe it is the best path forward for Twitter’s stockholders.”
Musk said he wanted to make Twitter “better than ever” by introducing new features, making its algorithms open source, stamping out bots and authenticating “all humans”. “Twitter has tremendous potential – I look forward to working with the company and the community of users to unlock it,” he added.
The town square is going private
Now that the deal is sealed, Musk said his vision for Twitter is a public town square where there are few restrictions on what people can or can’t say on the internet.
Musk said “free speech is the bedrock of a functioning democracy” and described the social media platform as “the digital town square where matters vital to the future of humanity are debated”.
But the utopian ideal envisioned by the Tesla CEO clashes with his controversial past on the site and his taking the company private is likely to have substantial ramifications for a platform used by more than 300 million people, including many world leaders.
Memorably, the Tesla CEO berated and cut off an analyst on an earnings call in 2018. “Excuse me, next, next. Boring, bonehead questions are not cool,” the CEO said after a question about his company’s capital requirements.
Musk has also run into trouble with federal officials as a result of his own tweets, some of which he’s used to taunt regulators at the Securities and Exchange Commission.
The more hands-off approach to content moderation that Musk envisions has many users concerned that the platform will become more of a haven for disinformation, hate speech and bullying.
Jeff Bezos has questioned whether China will lean on Elon Musk’s Tesla business to quell criticism of the country on Twitter.
Read more: Elon Musk unveils $46bn bid for Twitter
The world’s second richest man – after Musk – quoted a post from a New York Times reporter that listed the importance of China to Tesla’s business
Bezos responded with: “Interesting question. Did the Chinese government just gain a bit of leverage over the town square?” Musk called Twitter the “digital town square” after striking a deal on Monday and has made his belief in open debate a central purpose for the acquisition.
But now his verdict is: probably not.
Interesting question. Did the Chinese government just gain a bit of leverage over the town square? https://t.co/jTiEnabP6T
— Jeff Bezos (@JeffBezos) April 25, 2022
Jack Dorsey, Twitter’s founder, has had an on-off relationship with the social media app he launched back in 2006, has given his backing to Musk’s deal, tweeting that “Elon is the singular solution I trust.”
Musk, a self-described “free speech absolutist,” said his interest in buying the company not for profit but rather to aid the interests of civilisation.
“I think it’s very important for there to be an inclusive arena for free speech,” Musk said at the TED2022 interview.
“Twitter has become kind of the de facto town square, so it’s just really important that people have the, both the reality and the perception that they are able to speak freely within the bounds of the law.”
According to Musk, it is vital for people to have both the "reality and the perception that they are able to speak freely within the bounds of the law." He said Twitter accomplishes this.
US senator Elizabeth Warren described the deal as “dangerous for democracy”.
She tweeted: “Billionaires like Elon Musk play by a different set of rules than everyone else, accumulating power for their own gain.
“We need a wealth tax and strong rules to hold Big Tech accountable.”
This deal is dangerous for our democracy. Billionaires like Elon Musk play by a different set of rules than everyone else, accumulating power for their own gain. We need a wealth tax and strong rules to hold Big Tech accountable.
— Elizabeth Warren (@SenWarren) April 25, 2022
Deborah Brown, a digital rights researcher and advocate at Human Rights Watch, told Reuters: “Regardless of who owns Twitter, the company has human rights responsibilities to respect the rights of people around the world who rely on the platform.
Changes to its policies, features, and algorithms, big and small, can have disproportionate and sometimes devastating impacts, including offline violence.”
“Freedom of expression is not an absolute right, which is why Twitter needs to invest in efforts to keep its most vulnerable users safe on the platform.
Many said they will quit Twitter, including The Good Place actress Jameela Jamil.
“Ah he got twitter. I would like this to be my what lies here as my last tweet,” she wrote, alongside pictures of a dog.
“I fear this free speech bid is going to help this hell platform reach its final form of totally lawless hate, bigotry, and misogyny. Best of luck.”
London mayor Sadiq Khan has warned that "free speech cannot mean a free pass for hatred".
Free speech cannot mean a free pass for hatred.
We must not forget the impacts of online hate speech, which fans the flames of prejudice and leads to appalling and tragic real-world violence.
Social media companies must do more, not less, to protect their communities.
— Sadiq Khan (@SadiqKhan) April 26, 2022
However, Ayaan Hirsi Ali, a human rights activist and founder of the AHA Foundation, which works to liberate women and girls from cultural practices that violate their human rights, welcomed Musk’s purchase.
“Elon Musk now owns Twitter. It is a great day for Free Speech,” she tweeted.
Elon Musk now owns Twitter. It is a great day for Free Speech.
Let’s celebrate 🎉
— Ayaan Hirsi Ali (@Ayaan) April 25, 2022
Musk’s commitment to free speech is also being criticised as under his leadership, when Tesla has laid off employees, it’s asked them to sign separation agreements including non-disparagement clause with no end-date.
Taking Twitter private will also allow Musk to make changes without the scrutiny public companies typically are under from their shareholders.
"So, what about free speech? Republicans keen to see Donald Trump reinstated on the platform might be disappointed he has ruled out a return already. Others will be thankful, but the truth is we don’t know what free speech looks like if the rules are dictated at the whim of a billionaire who wants to send people to Mars and thinks EV cars will save the planet," Neil Wilson, chief market analyst for Markets.com, said.
"And he’s a billionaire with a very chequered history with the SEC … do they really feel that a take-private move will be best? I mean, Musk has hardly been a voice of calm and reason on the platform in the past...≠nor has he stuck to some very basic securities laws. And as noted above, will it be at the whim of only Musk or a bunch of Chinese and Saudi investors who probably don’t think free speech is that great. But I for one hope he succeeds, at least in making it a place where spam bots are defeated!" he added.
Will Twitter get an “edit” button?
Long before he made an offer to buy Twitter, Musk had tweeted about some changes he would have liked on the platform, including the much-talked-about edit button.
The billionaire’s pledge for could freedom of speech could see the blanket bans on various accounts, including those that have been spreading misinformation and extremist views, relaxed in the name of open discourse. However, this would go against Twitter’s work to stamp out toxic behaviour on the platform.
Previously, Musk said Twitter would abide by national laws that restrict speech around the world. Beyond that, he would be “very reluctant” to delete posts or permanently ban users who violate the company’s rules.
Musk also said he hoped to make available to the public the company’s algorithm, helping people understand how content surfaces on the platform.
“I also want to make Twitter better than ever by enhancing the product with new features, making the algorithms open source to increase trust, defeating the spam bots, and authenticating all humans,” he tweeted.
Removal of ads could also be in the works as Musk has hinted at plans to move Twitter away from relying largely on digital advertising.
Musk has said he favours a subscription model which is cheaper than the current package of Twitter Blue.
Musk has promised to crack down on bots, make it easier for human users to become authenticated, and even eliminate the large number of crypto scams on the service.
Watch: How Elon Musk plans to change Twitter
“If our twitter bid succeeds, we will defeat the spam bots or die trying!” He tweeted recently.
Whether Trump – or other banned users – would be allowed back to Twitter is still unclear.
His other proposed changes for Twitter include allowing for longer tweets. The current limit is 280 characters.
With all the changes, Twitter’s chief executive, Parag Agrawal, has warned employees that the future of the social media firm is uncertain.
Speaking at a town hall meeting, Agrawal explained: “Once the deal closes, we don’t know which direction the platform will go.”
Neil Campling, head of TMT research at Mirabaud Equity Research, had previously said Agrawal would be looking for a new job if Musk succeeded:
"Clearly there is no love lost between Musk and the CEO, so the CEO – who has only been in the job for a proverbial five minutes but has already made plenty of contradictory comments – will be tapping up his LinkedIn connections for a job," Campling said.
"Board salary will be $0 if my bid succeeds, so that's ~$3M/year saved right there," Musk tweeted in response to a user's post criticising the board.
Musk has already worried some staffers after he admitted to the possibility of shutting the company’s San Francisco headquarters and moving it to Austin, where Tesla is based.
Victoria Scholar, head of investment at Interactive Investor, said Musk could improve Twitter’s usability and monetise the site better.
"There are big questions ahead about what Musk’s leadership will mean for the company. There is the possibility that its headquarters could be moved to Austin, headcount could face cuts and there is likely to be a ideological shift in terms of the company’s focus away from content moderation and towards free speech instead.
"However despite speculation, Fox News is reporting that Donald Trump will not be returning to Twitter as he is using his own Truth Social platform instead.
"Overall stakeholders will be hoping that Musk can inject some of his Tesla-style magic to improve usability as well as monetisation, two things that Twitter has struggled with for a long time and more than most of its rivals.
"Meanwhile Tesla shares are under pressure with rising investor nervousness that its CEO will now be spread too thinly, distracted from electric vehicles by his new role as a social media mogul.”
What to expect from the deal?
If completed, the deal would be one of the largest leveraged buyouts on record but there are still risks.
"Of course. Twitter’s board caved and it will now be sold to Elon Musk for about $44bn. Seems a snip for the 'digital town square where matters vital to the future of humanity are debated’…" Neil Wilson, chief market analyst for Markets.com, said.
He added: "The deal remains subject to regulatory and shareholder approval... which it means it is not cast in stone just yet. Of $25.5bn in debt, some $12.5bn of that is a margin loan held against Tesla stock. So in a roundabout way does that mean that Tesla shareholders actually have some leverage over the world’s town square?
"Apart from that, that loan is tied to the value of Tesla stock – what if it drops 20%, 40%? Moreover, Musk needs to find $21bn in equity financing, so needs backers or presumably he might need to sell some more of his Tesla stock to finance it…margin calls anyone?
"Finally, a company that generates roughly $400m in FCF [free cash flow] each year will barely cover the interest cost of the leveraged buyout of this scale…does Musk have strategies for better monetising the platform? If not, it’s a trophy asset like owning a football club, which is fine if you are Musk but who else wants to stick, say, $200m in to it and get nothing in return? And if they do, they are not moms and pops so who are they – Saudis, Chinese, Russian? You might be taking Twitter back from Wall Street but who’s it being handed over to?"
Twitter’s shares rallied but are still trading below Musk’s ‘best and final’ offer of $54.20 which Twitter has accepted.
Russ Mould, investment director at AJ Bell, also sees risks in Musk’s push for more freedom of speech on the social media platform: “Twitter has a lot of passionate users and the company will have to work hard to try and retain them and attract new users if Musk lays out a regime that changes the way the platform operates.
“Suggestions there will be a clamp down on bot accounts would be beneficial to users, but not everyone likes the idea of complete freedom of speech. An unmoderated platform could foster a toxic environment and see users leave in droves.”
Shareholders still have to vote on whether to accept the deal. It will also be reviewed by regulators, but they are unlikely to seriously challenge the transaction.
It is expected to take three to six months for the deal to close, according to Twitter’s chief executive.
Freetrade senior analyst Dan Lane has warned that Musk’s takeover of Twitter could be "a disaster waiting to happen", which could distract him from running Tesla.
"At what feels like an inflection point, with the war in Ukraine bringing into sharp view the need to push further into renewables, Musk could be about to instead leap into the biggest vanity project the world has ever seen.
"Away from grand ideas about promoting free speech, what Musk actually sees is a special situation here, in much the same way as any other value-minded investor. But it will take time, resources and a learning curve before he can enact any serious plans he has in mind and, crucially, unlock any hidden value.
"Then there is the cultural chasm between working at Tesla and Twitter. Will Musk’s new employees buy into the plans? Have they been waiting for a new direction or will the reception be as hostile as the bid?
"The point here is the market doesn’t quite know if it’s arrogance leading the way or genius.
"Musk flits between both regularly, let’s see which one this is and if taking his eye off the Tesla ball for a while is worth it."
Musk is one of Twitter’s most popular users, with more than 80 million followers.
Watch: Elon Musk buying Twitter