Twitter stock forecast: Where next for TWTR after the Musk purchase?
On 27 October, after months of speculation and back and forth, Tesla CEO Elon Musk completed his purchase of Twitter (TWTR) for the price of $54.20 a share, taking the company private.
Musk confirmed the news himself as he tweeted “the bird is freed” on his personal Twitter account, referencing the social media site’s bird logo.
Shortly after taking control of the company, Musk reportedly fired several top executives, including head of legal policy, trust and safety Vijaya Gadde, chief financial officer Ned Segal and CEO Parag Agrawal.
Musk is the second most popular user on Twitter – behind former US President Barack Obama – with 110 million followers on the social media platform.
He initially became the company’s largest shareholder on 4 April, investing $2.89bn to take a 9.2% stake. His purchase of 73.5 million shares at the last closing stock price of $53.70 a share on 27 October gave the stake a book value of $3.94bn.
Musk’s attempts to back out of Twitter bid
Musk originally offered $54.20 a share for the social media network on 13 April, using a combination of debt and equity, according to a filing with the US Securities and Exchange Commission (SEC).
On 31 March, a filing with the SEC by fund management giant Vanguard showed it was the company’s largest shareholder, with a 10.29% stake in Twitter.
The company’s board of directors responded on 15 April with a ‘poison pill’, a defensive strategy to make a company less attractive to a hostile takeover bid.
A poison pill is a shareholder rights plan that gives a company’s existing shareholders the right to buy new shares at a discounted price, which serves to dilute the ownership interest of the hostile party and possibly thwart their takeover.
Twitter would have allowed shareholders to buy shares if Musk acquired a 15% stake, as more than 15% would give him control of the company.
Musk countered the poison pill provision by making an offer to shareholders directly for them to tender their shares, despite opposition from the board.
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Cash premium for shareholders
Twitter’s board of directors announced on 25 April that they had approved the deal, as it would “deliver a substantial cash premium” to shareholders – Musk’s offer represented a 38% premium to the closing price on 1 April 2022, before the Tesla CEO initially acquired a stake in the company.
On the day of that announcement, TWTR stock closed the trading day at $51.70.
Musk then changed his mind about the deal, accusing the company of misleading the public about the number of automated accounts – known as ‘spam bots’ – active on its platform.
The spam bot issue culminated in a termination letter sent by Musk’s representatives to the company on 8 July and disclosed in an SEC filing. Skadden attorney Mike Ringler claimed that “Twitter has not complied with its contractual obligations”.
Ringler also claimed that Twitter repeatedly failed to provide Musk with the information he had requested. Musk had previously said that he wanted to evaluate claims that about 5% of the platform’s monetisable daily active users (mDAUs) were spam accounts.
“Twitter has failed or refused to provide this information,” Ringler claimed.
Minutes after the letter became public, Twitter vowed to fight in court, with board chair Bret Taylor commenting on the matter in a tweet.
The Twitter Board is committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plans to pursue legal action to enforce the merger agreement. We are confident we will prevail in the Delaware Court of Chancery.— Bret Taylor (@btaylor) July 8, 2022
Musk’s takeover plan had included a provision that if the deal fell apart, the party breaking the agreement would pay a termination fee of $1bn, given certain circumstances. Whether the conflict over spam bots would be enough to allow Musk to walk away from the deal has been a matter of legal debate.
On 12 July, Twitter filed a lawsuit against Musk in an attempt to force him to complete the acquisition.
Musk responded with counterclaims that were made public on 4 August, arguing that he agreed to acquire the company based on Twitter’s SEC filings, which “contain numerous, material misrepresentations or omissions that distort Twitter’s value and caused the Musk parties to agree to acquire the company at an inflated price… that has been Twitter’s strategy all along: to distract from and obfuscate the truth about its disclosures – first from its investors and then from the Musk parties when they began to discern the truth.”
Twitter responded to the counterclaims in a filing with the court on 4 August:
The company argued that Musk was attempting to “escape a merger agreement that Musk no longer found attractive once the stock market – and along with it, his massive personal wealth – declined in value”.
The company added that “after spending months looking for an excuse to get out of the contract, Musk claimed to terminate it”, explaining his supposed reasons in a letter to Twitter on 8 July. It went on: “When Twitter sued to enforce its rights and exposed the weakness of those reasons, Musk spent weeks coming up with more supposed reasons – the counterclaims – which offer up an entirely new set of excuses for his breach.”
Twitter added that when he made the acquisition offer, Musk did not ask for any information on spam accounts and no references to false accounts were made in the merger agreement, noting: “To the contrary, Musk forwent all due diligence – giving Twitter 24 hours to accept his take-it-or-leave-it offer before he would present it directly to Twitter’s stockholders.”
On 29 August, Ringler issued a new termination notice to Twitter’s former legal chief Vijaya Gadde via an SEC filing, after Musk moved to subpoena Twitter’s former security chief Peiter Zatko, following news of a whistleblower report he filed in July.
“We write on behalf of X Holdings I, Inc. and X Holdings II, Inc. (the “Musk parties”) to provide an additional notice of termination of the Agreement and Plan of Merger by and among the Musk parties and Twitter, Inc. (“Twitter”) dated as of 25 April 2022,” the letter said.
On 30 August, Twitter responded again, rejecting Musk’s termination claim. “As was the case with your 8 July 2022 purported notice of termination, the purported termination set forth in your August 29, 2022 letter is invalid and wrongful under the agreement,” the company wrote in a letter filed with the SEC.
On 19 July, Twitter secured an expedited trial date scheduled for 17 October, which should have resulted in a ruling on whether or not Musk would be required by the courts to go ahead with the acquisition.
In a letter sent to Twitter on 3 October, it was stated Musk would proceed with the deal agreed upon in April, “provided that the Delaware Chancery Court enter an immediate stay of the action” in the court case between the Tesla CEO and Twitter.
On 5 October, less than two weeks before Musk and Twitter were scheduled to go to trial, Musk sent a letter to Twitter asking to revive his offer to purchase the social media giant for the original price of $54.20 a share.
In response to the letter, Twitter reported that they intended to to close the transaction. However, they did not expressly state whether they would be dropping the lawsuit against Elon Musk.
Twitter issued this statement about today's news: We received the letter from the Musk parties which they have filed with the SEC. The intention of the Company is to close the transaction at $54.20 per share.— Twitter Investor Relations (@TwitterIR) October 4, 2022
Twitter share price volatility before delisting
Twitter’s historical stock price was in an upward trend from 2017 until it peaked at its all-time high of $77.63 a share on 1 March 2021. However, the share price declined in 2022, falling to $31.30 in February – its lowest level since July 2020.
The price trend came under pressure as investors questioned how the company could increase revenue from its millions of users, with further bearish sentiment coming from the broader sell-off in technology stocks so far in 2022.
TWTR stock price spiked from $38.69 a share at the end of March to $50.98 on 5 April after Musk bought his stake in the company. It dropped to $44.48 on 12 April but rallied again and reached $51.70 on 25 April, when Musk made his acquisition offer.
TWTR dropped again, from $49.02 at the end of April to $35.76 on 24 May as Musk began to make comments that he would not move forward with the deal unless Twitter provided data proving that spam accounts make up less than 5% of its users.
Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of usershttps://t.co/Y2t0QMuuyn— Elon Musk (@elonmusk) May 13, 2022
The share price ticked back above $40 at the end of May, but doubts about the deal continued. The stock dropped by more than 5% to close at $36.81 on 8 July, a response linked to news that Musk had officially terminated his plans to acquire the company.
The share price rebounded to $44.43 on 10 August, but dropped to $39.30 on 30 August in response to Musk’s second termination agreement.
On 4 October, following reports of Musk’s agreement to go through with the deal, TWTR stock rebounded 22% to $52.
Following the completion of Musk’s acquisition, TWTR was delisted from the New York Stock Exchange (NYSE) as the company went private. The stock’s final closing price was $53.70 on 27 October. This was a rise of of 23% year-to-date (YTD) but a fall of 30% from its 2021 all-time high.
Analysts’ take on the Twitter-Musk saga
Some analysts had speculated that Musk was looking to renegotiate the deal at a lower price after the fall in the value of technology stocks this year.
US investment bank Truist Securities had noted in a Twitter stock analysis on 4 April:
The analysts pointed out that Musk bought into the company at a time when its stock was traded down by around 40% from the trailing 12-month period, at around five times its revenue estimate. At the time Truist had a Twitter stock price target of $50 a share.
What does Musk’s acquisition mean for the Twitter share price forecast?
What has the takeover meant for TWTR?
In its announcement on 25 April, the company said that when the transaction was to be completed later this year, Twitter would become “a privately held company”, with its shares no longer publicly traded.
Paperwork filed with the SEC on 28 October confirmed that the social media giant’s delisting would take place on 8 November.
Musk was expected to make changes to the platform that would no longer require shareholder approval or be subject to concerns about the impact on the share price.
On 27 October, following the finalisation of the aqcuitision, the Tesla CEO tweeted an open letter to Twitter advertisers outlining the direction he wanted the social media site to go in, though he didn’t detail any concrete plans for the future.
On 8 November, Musk unveiled ‘Twitter Blue’ a paid verification system under which, for $8 a month, any user on Twitter could purchase a blue check mark, usually reserved for the accounts of high profile individuals or groups. The plan later had to be revised to address users taking advantage of the check mark to impersonate high profile accounts.
Later that month, Twitter reinstated all formerly banned accounts, including that of former US President Donald Trump.
More recently, the company banned links to a number of competing social media sites on its platform. The decision, like many made following the acquisition, was met with controversy and the decision was overturned soon after.
On 8 December, Musk put up a poll on his Twitter account asking his followers if they believed he should step down as the head of the social media company. Though the numbers were close, the poll closed with 57.5% of the votes being for ‘yes’.
Musk has claimed that he would abide by the poll’s results and “resign as CEO as soon as [he finds] someone foolish enough to take the job”. The CEO added that he intended to keep running the software and servers teams.
In an analysis for the BBC, technology editor Zoe Kleinman said of the situation:
Plus, he’s got to find someone willing to take his place (and work with him) – and that position might prove a difficult one to fill.”
Is Twitter stock a good buy?
Following the Twitter’s acquisition in October, its stock has been delisted from the New York Stock Exchange (NYSE) and can no longer be purchased.
As a general rule however, whether any stock is an appropriate short-term trade for your portfolio will depend on your personal investing strategy and portfolio goals. It’s important that you do your own research on the latest developments to decide how to trade the stock. And never invest money that you cannot afford to lose.
Who owns Twitter stock?
Following the completion of his acquisition on 27 October, Elon Musk is the owner of Twitter.