board unanimously approved the bid Monday, there are really only two hurdles remaining: A shareholder vote and regulatory approvals. While the company’s Saudi investors have already said they would vote against the takeover, it appears unlikely that enough investors will join them to block the deal, which provides a 38% premium to where Twitter was trading before Musk started buying shares.
Which leaves only regulatory bodies.Musk is still fighting with the Securities and Exchange Commission over market-moving statements he made in 2018 over Twitter, and has regularly tweeted vitriolic statements at the regulator. However, the SEC “will not and cannot interfere with the merger,” according to Stephen Diamond, associate professor at Santa Clara University School of Law.
“Their only role would be to police the disclosure sent to shareholders by the board and Musk for accuracy and completeness,” Diamond told MarketWatch. “The federal securities laws are disclosure rules, for the most part, not about providing reassurance about substance.”
Other regulatory bodies could conceivably jump in amid an antitrust crackdown on Big Tech, but that would be more likely if it was not Musk making the offer. Joshua White, assistant professor of finance at Vanderbilt University, who was also a financial economist for the SEC in the past, said he does not see any antitrust concerns because Musk’s other companies — Tesla Inc.
SpaceX and the Boring Co. — do not compete with Twitter.
Analysts believe Twitter received no other offers for the slow-growing social-media company because the regulatory environment in Washington would likely not allow any sort of deal from rivals such as Facebook parent company Meta Platforms Inc.
or Google parent Alphabet Inc.
White also noted that Twitter’s financial situation is not appealing to most typical private-equity investors, who take companies private and use their cash flow to pay down debt.
“Twitter’s cash flow doesn’t fit the profile of a private-equity buyer,” White said.
While it isn’t private equity making the bid, the deal is structured similarly. Last week, Musk said that he had lined up $25 billion in debt financing from Morgan Stanley
Bank of America
and others, with Musk’s Tesla shares providing collateral for $12.5 billion of those funds. The remaining $21 billion in equity, according to the Wall Street Journal, will come from Musk himself, likely through the sale of some of his Tesla shares or his other company investments.
Assuming that financing holds up, the deal should go through, as long as Twitter shareholders vote to approve it. It is Tesla investors, however, who could be the real losers in this deal.
“If Tesla’s stock declines, then the loan to value will decline,” White said, adding that Musk would potentially have to liquidate more Tesla shares, adding more pressure to the EV maker’s stock.
In addition, Musk will have the added distraction of his role in revamping Twitter, which could detract from the attention he gives Tesla. Musk has stated many of his plans for Twitter on the platform itself, from making tweets available to edit and allowing for “free speech.” Musk also has outlined some cost-cutting measures for what he recently called the “de facto town square.”
Barring an unseen change, this deal will go through, and Twitter will become a private company. What will happen then is the biggest question, but Musk also said in a recent TED Talk interview that he didn’t “care about the economics at all,” implying that he would not focus on Twitter’s profitability or revenue growth.
If Musk is going to put economics aside, it’s a good thing for Twitter that he is taking it private, where the company can avoid Wall Street’s scrutiny of its slow-growing user base and revenue. It will also be good for Musk, as a privately held Twitter would avoid constant dealings with his favorite regulators.