Elon Musk, Tesla CEO, revised Wednesday the financing plan for his $44 billion acquisition of Twitter. Investors are hopeful that Musk will still be able to close the deal. The news comes as Twitter has been roiled by market turbulence and Musk’s not-entirely-explicable concerns about the number of fake accounts on Twitter.
Twitter’s annual shareholder meeting was delayed by the financing update. The Musk deal was not addressed by shareholders — the vote will be held at an undetermined future date if the deal goes through. After-market trading saw Twitter shares rise 5.5% to $39.22, a compounding 3.9% increase during regular trading.
Twitter shares rose more than 4.5% on Thursday morning. They hovered at $38.90
A regulatory filing outlines financing changes that would reduce the $6.25 billion loan Musk had originally lined up to finance the Twitter buyout. This means Musk will have to raise the $6.25 billion in stock commitments, instead of borrowing. This would increase the equity, or stock-based, portion of the deal from $27.25 billion Musk revealed three weeks ago to $33.5 billion.
Although Musk’s filing with the Securities and Exchange Commission did not provide any details about where he will receive the additional equity, he stressed that he is still trying persuade Jack Dorsey, a former Twitter CEO and supporter of the buyout to include his stock in the financing package.
According to FactSet Research, Dorsey is also a cofounder of Twitter and holds a 2.4% stake, which currently amounts to $700 million. This figure is based on Wednesday’s closing stock prices. Musk holds a 9.6% stake valued at $2.7 billion.
Wednesday marked Dorsey’s final day on Twitter’s board. This date was established when he resigned last November as CEO.
Investors didn’t find the details of the financing package as important as Musk’s news that he still intends to complete his Twitter purchase.
Musk’s resolve has been questioned seriously since he said he would put it “on hold” – something experts believe he cannot do unilaterally – until Twitter provides public proof that less than 5% of its accounts were fake accounts powered by spambots.
Even if the share price increase continues into regular trading on Thursday, Twitter still changes hands at a fraction of the $54.20 per shares Musk paid just one month ago.
Wall Street analysts think Musk is trying to get a lower price for the deal because the stock market and Musk’s personal wealth have fallen significantly since April, when he made his first offer.
Dan Ives, a Wedbush Securities analyst, said that the gap between Musk’s offer price for Twitter and Twitter’s stock price suggests that investors believe Musk will walk away from the deal unless they agree to a lower price. Twitter’s board has not yet stated that it will do so.
Ives had earlier estimated that Musk could cancel the Twitter deal and pay $1 billion in breakup fees, putting the company at risk of a lawsuit. Ives believes that Musk is now trying to get a new financing package. However, this is only if the board of Twitter is willing to sell the company for significantly less than the agreed price. Ives stated that Musk is trying to hedge his bets, but the real elephant in the room is still there.
Twitter has settled another possible headache Wednesday when it agreed to pay a $150 million penalty in settlement of allegations that it used its users’ personal information to sell advertising between 2013 and 2019. This was brought to the U.S. Department of Justice (Federal Trade Commission)
Parag Agrawal, CEO of Parag Agrawal, stated at the shareholder meeting that no executives would be answering questions about the Musk bid. Even a question by a stockholder about what would happen to his shares in the event that someone bought Twitter and made it private was rejected. (In the event of this, the stockholder would receive the agreed-upon purchase amount for each share and the stock will be removed from the market).
Musk didn’t attend the meeting, though he could have, as he is one of Twitters largest shareholders.
However, Musk’s drama over his offer threatened to spill into Wednesday’s proceedings. Musk was often invoked by shareholders who raised proposals to vote. The New York State Common Retirement Fund proposed one proposal that required a report about Twitter’s policies regarding corporate contributions to political campaigns. The preliminary vote passed.
Conservative groups brought two proposals that failed to pass. The first called for an audit of the company’s “impacts upon civil rights and nondiscrimination”. It also referred diversity, equity, and inclusion programs as “immoral and illegal” and “against the shareholders’ interests.” Another demanded more information about the company’s lobbying activities.
Many proposals addressed the existential conflict between employees, shareholders, users, and employees at Twitter. While some shareholders criticized the company for its too-liberal politics, bias against conservatives, and others stated that the company fails to protect users against harassment, abuse, and misinformation.