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Twitter, under shareholder pressure, begins deal talks with Musk -sources

Stock Markets Apr 25, 2022 06:25AM ET
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© Reuters. Elon Musk's twitter account is seen on a smartphone in this photo illustration taken, April 15, 2022. REUTERS/Dado Ruvic/Illustration

By Svea Herbst-Bayliss and Greg Roumeliotis

(Reuters) -Twitter Inc kicked off deal negotiations with Elon Musk on Sunday after he wooed many of the social media company's shareholders with financing details on his $43 billion acquisition offer, people familiar with the matter said.

The company's decision to engage with Musk, taken earlier on Sunday, does not mean that it will accept his $54.20 per share bid, the sources said. It signifies, however, that Twitter (NYSE:TWTR) is now exploring whether a sale of the company to Musk is possible on attractive terms, the sources added.

Musk, chief executive of electric car giant Tesla (NASDAQ:TSLA) Inc, has been meeting with Twitter shareholders in the last few days, seeking support for his bid. He has said Twitter needs to be taken private to grow and become a genuine platform for free speech.

Many Twitter shareholders reached out to the company after Musk outlined a detailed financing plan for his bid on Thursday and urged it not to let the opportunity for a deal slip away, Reuters reported earlier on Sunday.

Musk's insistence that his bid for Twitter is his "best and final" has emerged as a hurdle in the deal negotiations, the sources said. Nevertheless, Twitter's board has decided to engage with Musk to gather more information on his ability to complete the deal, and potentially get better terms, the sources added.

Twitter has not yet decided if it will explore a sale to put pressure on Musk to raise his bid, according to the sources. The people with knowledge of the matter declined to be identified because the deal discussions are confidential.

Twitter wants to know more about any active investigations by regulators into Musk, including by the U.S. Securities and Exchange Commission (SEC), that would present a risk to the deal being completed, one of the sources said.

Securities lawyers say that Musk, who settled charges that he misled investors by suggesting four years ago he had secured funding to take Tesla private, may have breached SEC disclosure rules as he amassed a stake in Twitter earlier this year.

Twitter is also looking into whether regulators in any of the major markets it operates would object to Musk owning the company, the source added. Were Twitter to establish that a sale to Musk would be risky, it could ask for a sizeable break-up fee, according to the sources.

The social media company adopted a poison pill after Musk made his offer to prevent him from raising his more than 9% stake in the company above 15% without negotiating a deal with its board. In response, Musk has threatened to launch a tender offer that he could use to register Twitter shareholder support for his bid.

A concern that Twitter's board weighed was that unless it sought to negotiate a deal with Musk, many shareholders could back him in a tender offer, the sources said.

While the poison pill would prevent Twitter shareholders from tendering their shares, the company is worried that its negotiating hand would weaken considerably if it was shown to be going against the will of many of its investors, the sources added.

Representatives for Twitter and Musk did not immediately respond to requests for comment.

The Wall Street Journal reported earlier on Sunday that Musk and Twitter would meet to discuss the acquisition offer.

'INTRINSIC VALUE'

The price expectations among Twitter shareholders for the deal diverge largely based on their investment strategy, the sources said.

Active long-term shareholders, who together with index funds hold the biggest chunk of Twitter shares, have higher price expectations, some in the $60s-per-share, the sources said. They are also more inclined to give Parag Agrawal, who became Twitter's chief executive in November, more time to boost the value of the company's stock, the sources added.

"I don't believe that the proposed offer by Elon Musk ($54.20 per share) comes close to the intrinsic value of Twitter given its growth prospects," Saudi Arabia's Prince Alwaleed bin Talal, a Twitter shareholder, tweeted on April 14.

Short term-minded investors such as hedge funds want Twitter to accept Musk's offer or ask for only a small increase, the sources said. Some of these are fretting that a recent plunge in the value of technology stocks amid concerns over inflation and an economic slowdown makes it unlikely Twitter will be able to deliver more value for itself anytime soon, the sources added.

"I would say, take the $54.20 a share and be done with it," said Sahm Adrangi, portfolio manager at Kerrisdale Capital Management, a hedge fund that owns 1.13 million shares in Twitter, or 0.15% of the company, and has been an investor since early 2020.

One silver lining for Twitter's board is that Musk's offer did not appear to convert much of his army of 83 million Twitter followers into new shareholders in the San Francisco-based company who could back his bid, the sources said.

Twitter's retail investor base has increased from about 20% before Musk unveiled his stake on April 4 to some 22%, according to the sources.

Twitter, under shareholder pressure, begins deal talks with Musk -sources
 

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Comments (7)
jason xx
jason xx Apr 25, 2022 6:00AM ET
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Free Speech = Free to spread lies
Trevor Roberts
LimitUp Apr 25, 2022 6:00AM ET
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Liberals are a trip, it feels like every one of you were trained by the CIA in psych warfare. This “spreading lies” is the newest fascist trend of our lefty friends.
Murali Krishna
Murali Krishna Apr 25, 2022 4:21AM ET
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Twitter is a $20 stock. What is this mad fellow Elon Musk doing drama. he has been unsuccessfully trying to talk Twitter up to get out of Twitter. he will sell finally at $18
Nils Hullmann
Nils Hullmann Apr 24, 2022 11:57PM ET
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the Dems will do everything to prevent this.....a trump on Twitter again is their worst case scenario
jason xx
jason xx Apr 24, 2022 11:57PM ET
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Lol is that what this is all about? Getting chump trump back on Twitter? What happened to truth social?
jason xx
jason xx Apr 24, 2022 11:57PM ET
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What is chump trumps take? Surrender Europe to Russia?
Trevor Roberts
LimitUp Apr 24, 2022 11:57PM ET
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jason xx ah yes, dems are known to be such great leaders in war time. Not🤡
Joel Schwartz
Joel Schwartz Apr 24, 2022 9:08PM ET
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So the FED prints money out of thin air, allocates most of it to billionaires and then we’re just supppsed to be okay with them owning methods of pumping and dumping on retail?
Steven Kilgore
Steven Kilgore Apr 24, 2022 7:19PM ET
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The problem with asking for a sweetened deal is, if Musk says ****it and sells his shares the price will drol back down to the low 20’s. That happens and Twitter’s baord is going to be fighting lawsuits for the next 2 decades.
Robert Cox
Robert Cox Apr 24, 2022 7:19PM ET
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So would Musk.
steven lanier
steven lanier Apr 24, 2022 4:59PM ET
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free speech WILL reign again in this country! ppl hv had enough.
Joel Schwartz
Joel Schwartz Apr 24, 2022 4:59PM ET
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Billionaires buying their own version of “free speech” aint free or fair.
jason xx
jason xx Apr 24, 2022 4:59PM ET
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Free speech doesn't mean you are free to spread lies
Tims Mopheme
Tims Mopheme Apr 24, 2022 4:51PM ET
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Twitter is missing a lot
 
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