Elon Musk bids for Twitter

Elon Musk is trying to buy Twitter. Perhaps you heard. Musk offered $54.20 a share, and like many Musk-related things this was both a joke (420 is a number associated with weed) and not (Elon Musk really is trying to buy Twitter).

I’ll say it: I was surprised. I misjudged Musk’s intentions. Three days ago I was here telling you that Musk turned down a board seat because he had already gotten everything he wanted out of Twitter: all of the influence that comes with being the company’s biggest individual shareholder, without the headaches that come with being truly responsible for it.

Reader, he had not gotten everything he wanted. Or perhaps what he wanted changed. Musk’s actions over the past week have made a hash out of all my predictions. But this is what I meant when I called him a trickster god, a chaos muppet, Loki with an ant farm. With Musk you are wise to expect the unexpected.

On Tuesday, the great Musk watcher Matt Levine gamed out a theoretical offer to buy Twitter and concluded that Musk likely wouldn’t make one. The Tesla CEO doesn’t really have the money; he doesn’t have any known partners to help him raise the funds. It also seemed likely that Twitter would adopt so-called poison pill provisions to make the stock harder for Musk to acquire.

At the same time, Levine noted, if Musk did offer to buy Twitter, its board would be in a very bad position:

If you are a Twitter director confronted with an Elon Musk hostile takeover proposal, and you put in a poison pill to block him, then:You’ll definitely get sued.He’ll run a proxy fight to try to vote you out, and an army of retail investors will buy the stock and vote with him.He will tweet so many mean things about you, and those mean tweets will get lots of engagement.Your defense will be like “no, we know what we are doing, we are excellent at maximizing long-term value for our shareholders and we have a viable plan to make Twitter vastly more valuable in the future,” which is somewhat empirically doubtful.If you prevail and Musk’s offer goes away, he’ll probably quit Twitter in a huff, you’ll lose your noisiest user, the stock will drop and you’ll get sued some more.It’s just very very unpleasant you know?

If Musk launched a credible cash takeover bid the board would really have no choice but to negotiate with him. (If the bid said “I have $40 billion of financing secured for this bid, but I can’t tell you anything else about it,” the negotiations would be very annoying.) I just don’t think he’ll do it.

Well, he did it. And as of Thursday afternoon, maybe for these reasons, the board’s public position is that it is still evaluating the offer. (Its private position is that it is considering that poison pill, and might decree that Musk’s offer price is too low. A Saudi prince who is believed to own around 4 percent of Twitter may have given the board some cover here, when he tweeted today that Musk’s offer doesn’t come “close to the intrinsic value of Twitter given its growth prospects.”)

Today, let’s try to answer the three biggest questions about Musk’s Twitter bid. Can he succeed? What would he do if he did? And what would that mean for Twitter?

I. Can he succeed?

On Thursday afternoon, most people in the worlds of journalism and finance believed the answer to be no. Under the trickster-god theory of Elon Musk, this is reason for us to assume the answer may be yes.

Why do so many people believe the answer is no? Well, there are all the board-related issues above. And as Levine noted, it’s not clear where Musk would get the money. If you’re wondering why Twitter’s stock price fell 2 percent today – an almost unheard-of outcome when someone offers to buy a company’s stock at a premium — it’s because shareholders don’t believe Musk can pull it off, and may exit his ownership stake.

But that doesn’t mean Musk couldn’t get the money. And indeed, during a spectacularly timed interview at TED on Thursday morning after the news was announced, Musk said that he had “sufficient assets” to cover the $43 billion purchase price. But he didn’t elaborate, and voiced uncertainty of his own: he said he expects the process to be “painful,” and added that “I’m not sure that I will actually be able to acquire it.”

(Learned during the course of reporting today’s newsletter: for a billionaire, Musk is cash-poor. And one obvious potential lender, JP Morgan, is likely off the table because of a long-running feud between Musk and CEO Jamie Dimon.)

In short, it acquiring Twitter would be possible but painful for Musk. And so one question is how much pain he is willing to tolerate, and with his original (and allegedly final) offer still under consideration, it is too soon to say.

II. What would he do if he did?