Five reasons it will be hard for Elon Musk to buy Twitter

The Washington Post / Rachel Lerman

13:02 JST, April 16, 2022

Elon Musk is already facing pushback on multiple fronts on his plan to buy social media company Twitter for about $43 billion.

The billionaire launched his takeover bid this week after weeks of back-and-forth wrangling with Twitter since he became a major shareholder. First, he was going to join the board. Then, he decided not to join the board.

Now, he wants to buy the whole company and take it private. But Twitter’s board, employees and Musk’s own resources might make his takeover attempt a tough task to complete.

Here are the barriers standing between him and owning the social media app:

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-1. His money is tied up

The world’s richest person might not have the money to buy Twitter. Much of Musk’s wealth – about $251 billion, according to the Bloomberg Billionaire’s Index – is tied up in Tesla and SpaceX ownership, companies where he serves as CEO.

According to a Bloomberg analysis, Musk has about $3 billion in liquid assets – leaving him about $40 billion short of his proposed purchase price.

Still, he has options to get the money, said Dan Ives, an analyst with Wedbush Securities. Musk could structure part of the money as debt financing, and then use his Tesla stock as collateral to get loans for the rest from banks, Ives said.

He could also sell Tesla shares, but selling too much could risk the stability of his companies’ stock prices.

“I mean, I could technically afford it,” Musk said during a live interview at a TED conference Thursday.

A Bloomberg Intelligence note cast doubt on the deal this week. “Musk’s ‘best and final’ $43 billion non-binding offer has numerous conditions, including completion of financing, which we believe give it a low probability of success,” the note reads.

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-2. Twitter is using a “poison pill”

Twitter deployed a so-called “poison pill” plan Friday to try to stave off Musk’s takeover attempt.

The bitterly named plan, which is actually called a “shareholder’s rights plan,” would allow shareholders other than Musk to buy additional stock at a discounted price, flooding the market with shares that would then trade at a premium. That would make it difficult for Musk, who already owns more than 9% of the company, to get a much higher stake without spending a lot more money.

The poison pill only goes into effect if Musk takes more than a 15% stake in the company. Experts told The Washington Post that the plan makes it so that Musk will need to either persuade the board to drop the pill provision, or negotiate with them.

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-3. Twitter’s board is not sending welcoming signals

The company has been less than eager to accept Musk’s offer. The poison pill provision is a key sign of the board’s reluctance, though it did say in a statement that it would “carefully review,” the offer, as is its obligation to shareholders.

Musk’s offer price of $54.20 per share is a premium of about 18% on Twitter’s stock price at closing Wednesday, but still well below what the stock hit at the beginning of 2021, leading some experts to argue it might be too low.

The board also has to answer to shareholders, and some have already expressed their displeasure at Musk’s bid.

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-4. Employees are wary

Many employees within San Francisco-based Twitter have expressed concern, either online or during an all-hands meeting with CEO Parag Agrawal, about the billionaire owning the company. Some have questioned what that means for the company’s moderation policies (Musk seems to favor a more lax approach) and for the independent work culture.

One worker called Musk’s behavior bullying in a tweet. “‘Titter’ is currently trending because he decided – like a playground bully pandering to his fanboy lackeys – to make a joke at Twitter’s expense,” the employee wrote. “And, we all know the joke is not really the point. Humiliation is.”

Twitter’s board will have to consider the outcome of tension between a possibly disgruntled workforce and a new owner.

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-5. He already runs multiple companies

Musk is busy, and some experts worry that taking on yet another company could stretch the entrepreneur too thin. He already leads electric car company Tesla, space exploration company SpaceX, tunneling business The Boring Company and a brain microchip start-up, Neuralink.

That perceived split in focus could concern investors, and could hinder any attempt to wage a proxy war – or replace board members with those favorable to the offer – should his bid be rejected.

“His plate is already pretty full with Tesla and SpaceX,” David Larcker, a professor at Stanford’s Graduate School of Business told The Post. “Does he need another company to run?”

Musk said during the TED interview that he had a backup plan to buy Twitter should this takeover bid fail, but he did not offer any specifics.

Next, the board will need to announce their decision on Musk’s bid.