Elon Musk's Twitter Bid Adds to Uncertainty

After rejecting Twitter’s offering of a board seat, Elon Musk placed a bid to take the no-moat-rated firm private for $54.20 per share, or around $43 billion in cash, only slightly below our unchanged $58 fair value estimate and an 18% premium to where the stock closed April 13. While the board will take the Tesla CEO's offer into consideration, we believe the probability of Twitter accepting it is likely below 50%. However, we think the board may also be pondering whether it should discuss leadership changes with Musk, such as replacing CEO Parag Agrawal, as that may lessen the likelihood of Musk selling his shares if the bid is rejected.

According to the letter that Musk submitted to Twitter’s board on April 13, he thinks that the changes necessary to enhance the platform, mainly to loosen content moderation or improve free speech, are more doable if Twitter becomes a private firm.

Musk referred to this as his “best and final offer” and that if not accepted he “would need to reconsider [his] position as a shareholder,” threatening that he may consider selling his current stake. This could possibly drive the stock price down and disappoint Twitter shareholders.

If Musk’s offer is rejected, he could still attempt to raise the capital necessary to create a similar social media platform to compete with Twitter, although attracting millions of daily active users, as Twitter had at the end of 2021, would be a tough task.

Whether Twitter accepts the offer or Musk sells or keeps his stake in the firm, we think his influence on the platform will remain very high. However, as Musk has displayed his thirst to change Twitter mainly with regard to content moderation, some large brands may become hesitant to place ads next to what they consider may be more questionable content.