Why Elon Musk’s money problem could prevent Twitter takeover

Elon Musk’s bombshell move to takeover Twitter has caused outrage but despite being the world’s richest person there could be trouble with his $58b offer.

A brutal battle is playing out as Elon Musk attempts a $US43 billion ($A58 billion) plan to takeover Twitter after he became a major shareholder last week, but despite being the world’s richest person his bombshell move could fail.

Musk became the biggest shareholder of Twitter after buying a 9.2 per cent stake in the company and later made a cash offer to purchase the entire company for $US54.20 ($A73.29) per share.

But there are a number of barriers that Musk faces with his hostile bid to buy the company, including a huge financial headache, not offering enough money and dealing with a load of disgruntled employees.

The big problem for Musk’s is much of his $US300 billion ($A395 billion) fortune is tied up meaning the billionaire may not even have the funds to buy Twitter.

The CEO has mostly paper-wealth as his billions are comprised of stocks in SpaceX and his electric car manufacturer Tesla.

According to Bloomberg analysis, his offer to buy Twitter represents about one-sixth of his entire fortune and he only has about $US3 billion in cash, leaving him $US40 billion short of his proposed price.

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Elon Musk has launched a hostile takeover bid for Twitter, insisting it was a "best and final offer" and that he was the only person capable of unlocking the full potential of the platform. Picture: Olivier Douliery / AFP

However, he could make up the money with a risky move such as selling 36.5 million Tesla shares or more than a fifth of his stake, although this could see the company’s share price plummet, according to Bloomberg.

Another option would be use some of his cash as debt financing and lean on his Telsa stock as collateral to pick up a loan from banks.

“This becomes a hostile takeover offer which is going to cost a serious amount of cash,” Neil Campling, head of TMT research at Mirabaud Equity Research told Bloomberg.

“He will have to sell a decent piece of Tesla stock to fund it, or a massive loan against it.”

But Musk insisted he could “technically afford it”when speaking during a live interview at a TED conference last Thursday.

Yet, a Bloomberg Intelligence note questioned whether the deal could go ahead given the finance issue.

“Musk’s ‘best and final’ $US43 billion non-binding offer has numerous conditions, including completion of financing, which we believe give it a low probability of success,” the note said.

Tesla chief Elon Musk waving onstage at the TED2022: A New Era conference in Vancouver, Canada. Picture: AFP photo / TED conferences / Ryan Lash

It’s not just the money that is presenting a huge problem for the 50-year-old.

Twitter moved swiftly on Friday to defend itself against Musk’s $US43 billion hostile takeover bid, announcing a “poison pill” plan that would make it harder for the billionaire to get a controlling stake.

Twitter said its board unanimously adopted a so-called shareholder rights plan, also known as a “poison pill,” which kicks in if an investor buys more than 15 per cent in shares without the directors’ agreement. Musk currently holds 9 per cent.

The manoeuvre allows shareholders other than Musk to buy at a discounted price flooding the market with premium priced shares, making it far more expensive for him to obtain a higher stake.

While Twitter is obliged to consider the offer on behalf of shareholders, the offer could also still be too low according to experts.

Despite Musk’s offer price of $US54.20 per share adding a premium of about 18 per cent on Twitter’s stock price at closing on Wednesday, its well below what the stock was worth at the beginning of 2021. Currently, Twitter shares are trading at $US45.

It seems however that Musk won’t budge on the price.

“I am not playing the back-and-forth game,” Musk said on Thursday. “I have moved straight to the end. It’s a high price and your shareholders will love it. If the deal doesn’t work, given that I don’t have confidence in management nor do I believe I can drive the necessary change in the public market, I would need to reconsider my position as a shareholder.”

Twitter announced on April 5, 2022 that it will soon start testing an edit button at its monthly subscription service. The ability to tweak tweets after firing them off has been a feature users have long yearned for at the one-to-many messaging platform. Picture: Lionel Bonaventure / AFP

Musk could also face an employee backlash if he was to takeover the company.

He has already flagged changes he wants to see happen on the social media platform including more caution about taking down tweets or permanently banning users and opting for time outs instead, allowing for long form tweets and ditching advertising for subscriptions.

Reports of Twitter employees needing to “help each other through the week” as a result of the stress brought on by Musk’s purchase flooded the media last week, amid concerns what a Musk takeover would mean for its independent culture and moderation policy.

Several employees posted they would resign as news of Musk’s 9 per cent buy-in broke, claiming his presence at the company will have negative effects on mental wellbeing.

One worker described the brutal fallout of Musk’s move.

“‘Titter’ is currently trending because he decided — like a playground bully pandering to his fanboy lackeys — to make a joke at Twitter’s expense,” the employee wrote. “And, we all know the joke is not really the point. Humiliation is.”

Tesla chief Elon Musk has launched a hostile takeover bid for Twitter, insisting it was a "best and final offer" and that he was the only person capable of unlocking the full potential of the platform. Picture: Patrick Pleul / Pool / AFP

Other experts questioned how Musk could dedicate himself to Twitter considering he is already the CEO of Tesla and SpaceX, as well as tunnelling business The Boring Company and a brain microchip start-up, Neuralink.

“His plate is already pretty full with Tesla and SpaceX,” David Larcker, a professor at Stanford’s Graduate School of Business told The Washington Post.

“Does he need another company to run?”

The Twitter board has yet to formally respond to the details of Musk’s takeover proposal, although he did warn he has a back up plan if his current offer fails.