Twitter’s Board Approves Musk’s $44 Billion Acquisition

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Yesterday we told you that Elon Musk is demanding that Twitter sort three things out before going ahead with his takeover of the company. He wants to know how many fake accounts created by bots have illegal Twitter subscribers. The company says the number of fake users is less than 5% of the total, a figure heavily dismissed as false by the world’s richest man.

Musk is reportedly unhappy with the structure of his deal to buy Twitter

Musk is also said to be unhappy with the structure of the deal, which will reportedly include highly leveraged margin loans that will allow him to borrow up to 50% of the value of his Tesla shares. This is a very risky move by Musk because if Tesla stock were to fall in value to the point where the stock being used as collateral for a loan falls below a certain level, Musk would be forced to put extra money in his account or face. to deposit. sell his Twitter shares unilaterally.

The third thing Musk wants to know is whether he has the support of Twitter shareholders. Not everyone likes him and he has played games with Tesla shareholders before. In August 2018, the multi-billionaire (with an estimated net worth of $213.9 billion) posted a tweet to his 22 million Twitter followers saying he could take Tesla private for $240 a share, a huge premium to Tesla’s stock. at the time.

Musk’s tweet sent shares up more than 6%, though no deal terms were discussed with major financing partners. The SEC’s complaint, filed in federal court in the Southern District of New York, alleged that Musk violated the anti-fraud provisions of the federal securities laws.
According to CBS NewsTwitter’s board of directors voted today to approve the $44 billion merger. Still, the price of Twitter’s shares on the corner of Wall Street and Main Street remains well below the $54.20 per share that Musk initially said he was paying. At today’s close, Twitter stock closed at $38.91 for a gain of just under 3% for the day.
In an interview with Bloomberg last month, Musk said he will reduce the salaried workforce at Tesla by 10% over the next three months. He also said his goal to cut jobs at the electric car maker came about because of a “super bad feeling” he has about the US economy. Speaking of the possibility of a US recession, the CEO said, “It’s not a certainty, but it seems more likely than not.”

Musk could take a financial hit if he’s called on to put in more money to meet a margin call

Musk’s fear of receiving a margin call is a legitimate concern. After all, Tesla’s stock has fallen by a third since early April, when Musk first announced his plans to buy Twitter. The stock sell-off came as investors feared Elon would sell some of his 175 million shares of Tesla to fund the deal. The latest reported data shows Twitter with 330 million monthly active users and 166 million daily active users (mDAU).

To reduce the risk of receiving a margin call, Elon Musk needs to make a change to how the deal is currently funded. This can be done by lowering the value of the deal. The quickest way this could be accomplished would be for Elon to announce that he was relinquishing the deal. Short-seller Hindenburg Research said last month: “If Elon Musk’s bid on Twitter were to disappear tomorrow, Twitter’s equity would drop by 50% from current levels. Consequently, we see significant risk of the deal getting lower.” repriced.”

A short seller is a trader who takes advantage of a declining stock by borrowing the stock and then selling them in hopes of buying back the stock at a lower price. Now that Twitter’s board of directors has approved the deal, it has sent the SEC a letter advising Twitter’s shareholders to “vote (for) the approval of the merger agreement.” If the deal were closed now, Twitter investors would take a profit of $15.22 for every share they own.

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