Hostile Takeovers – Twitter and Musk Saga

Hostile Takeovers – Twitter and Musk Saga

๐‡๐จ๐ฌ๐ญ๐ข๐ฅ๐ž ๐ญ๐š๐ค๐ž๐จ๐ฏ๐ž๐ซ๐ฌ are rare, but the recent ๐Œ๐ฎ๐ฌ๐ค-๐“๐ฐ๐ข๐ญ๐ญ๐ž๐ซ ๐ฌ๐š๐ ๐š raises a few questions from my end. In my experience, there are two motivations behind this deal.

1)๐„๐ฑ ๐ฉ๐จ๐ฌ๐ญ ๐ซ๐š๐ญ๐ข๐จ๐ง๐š๐ฅ๐ž:ย With its new management, Musk infuses fresh ideas and superior efficiencies and rectifies the past mistakes of Twitter.

2)๐„๐ฑ-๐š๐ง๐ญ๐ž ๐ซ๐š๐ญ๐ข๐จ๐ง๐š๐ฅ๐ž:ย Despite the failed bid, this action may induce a disciplining effect on Twitter of the hovering threat of a takeover in the case of continuing poor performance.

However, another component of takeovers has nothing to do with the above two rationales.

3)#elonmuskย intends to build an empire and is willing to acquire the target to enjoy control benefits, though this corporate action reduces shareholder value.

๐ˆ๐Ÿ ๐ˆ ๐š๐ฆ ๐š๐๐ฏ๐ข๐ฌ๐ข๐ง๐  ๐“๐ฐ๐ข๐ญ๐ญ๐ž๐ซ ๐จ๐ซ ๐Œ๐ฎ๐ฌ๐ค (๐š๐ฌ๐ฌ๐ฎ๐ฆ๐ž ๐ข๐ญ ๐š๐ฌ ๐ก๐ฒ๐ฉ๐จ๐ญ๐ก๐ž๐ญ๐ข๐œ๐š๐ฅ), ๐ฆ๐ฒ ๐Ÿ๐ซ๐š๐ฆ๐ž๐ฐ๐จ๐ซ๐ค ๐Ÿ๐จ๐ซ ๐ญ๐ก๐ข๐ฌ ๐๐ž๐š๐ฅ ๐ข๐ฌ ๐š๐ฌ ๐Ÿ๐จ๐ฅ๐ฅ๐จ๐ฐ๐ฌ:

V= Current value to Twitter shareholders
W= Returns for Twitter’s current majority shareholder
P= Probability Twitter will earn excess returns (roe>ke)
R= Excess returns/EVA (roe-ke)
Rb= Current stake of the majority shareholder

๐€๐ญ ๐ฌ๐ญ๐š๐ญ๐ฎ๐ฌ ๐ช๐ฎ๐จ,

V= P(R-Rb)
W= P
Rb

๐…๐จ๐ซ ๐Œ๐ฎ๐ฌ๐ค, ๐š๐Ÿ๐ญ๐ž๐ซ ๐ญ๐ก๐ข๐ฌ ๐๐ž๐š๐ฅ,

V”= Expected value to Twitter investors after Musk takes over
W”= Musk’s excess returns after the takeover

Ifย Twitter‘s corporate charter makes this transfer of control for Musk difficult with the Poison pill/shareholder rights plan, then Musk needs to derive for what value of V” and W” should this transfer of control occur.

Besides the transaction price, Musk needs to set aside a sunk cost to define a corporate strategy for Twitter and ascertain the impact of committing such resources.

If Musk does ๐ง๐จ๐ญ ๐ก๐š๐ฏ๐ž ๐š๐ง๐ฒ ๐œ๐ซ๐ž๐๐ข๐ญ ๐œ๐จ๐ง๐ฌ๐ญ๐ซ๐š๐ข๐ง๐ญ๐ฌ on raising funds for this acquisition (he can pay 100% (V”+W”)) and seeks to maximise his NPV from this deal,

๐๐๐• > ๐–”-๐•”-๐’๐ฎ๐ง๐ค ๐œ๐จ๐ฌ๐ญ๐ฌ-๐Ž๐ฉ๐ฉ๐จ๐ซ๐ญ๐ฎ๐ง๐ข๐ญ๐ฒ ๐‚๐จ๐ฌ๐ญ๐ฌ ๐จ๐Ÿ ๐Ÿ๐จ๐ซ๐ž๐ ๐จ๐ง๐ž ๐ฌ๐ฎ๐ซ๐ฉ๐ฅ๐ฎ๐ฌ

In the case of Twitter, i am still unclear whether the rationale behind this hostile takeover is point 1 or point 3.



2 Comments

  • […] Twitterย has been at a crossroads withย #jackdorseyย quitting the firm to focus onย #bitcoin and nowย Elon muskย wanting to acquire Twitter for $44 billion. […]

  • […] Elon musk’s deal with Twitter is finally over, and no other ๐๐ž๐š๐ฅ ๐ก๐š๐ฌ ๐ ๐š๐ซ๐ง๐ž๐ซ๐ž๐ ๐ฌ๐ฎ๐œ๐ก ๐ก๐ž๐š๐ฏ๐ฒ ๐š๐ญ๐ญ๐ž๐ง๐ญ๐ข๐จ๐ง ๐ ๐ฅ๐จ๐›๐š๐ฅ๐ฅ๐ฒ as this deal. I have written a few posts on this deal, providing insights on Twitter valuation and how it could impact Twitter and Teslaย post this transaction. ๐‡๐ข๐ฌ๐ญ๐จ๐ซ๐ฒ ๐ฐ๐ข๐ฅ๐ฅ ๐ญ๐ž๐ฅ๐ฅ ๐ฎ๐ฌ ๐ข๐Ÿ ๐ญ๐ก๐ข๐ฌ ๐ฆ๐จ๐ฏ๐ž ๐ก๐ž๐ฅ๐ฉ๐ฌ ๐“๐ฐ๐ข๐ญ๐ญ๐ž๐ซ ๐จ๐ซ ๐Ÿ๐ฎ๐ซ๐ญ๐ก๐ž๐ซ ๐ฉ๐ฎ๐ฌ๐ก๐ž๐ฌ ๐ข๐ญ ๐ญ๐จ ๐ญ๐ก๐ž ๐๐จ๐ฅ๐๐ซ๐ฎ๐ฆ๐ฌ. […]

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