Twitter Inc’s board unanimously recommended that shareholders approve Elon Musk’s bid to take the social media company private in a $44 billion deal, eight days before they are scheduled to vote and as the billionaire entrepreneur seems to be seeking to back out or renegotiate his offer.
On Monday, Musk has floated the idea of trying to lower his initial offer of $54.20 a share, saying a deal at a lower price wouldn’t be “out of the question.” The billionaire entrepreneur is raising doubts about Twitter’s publicly disclosed data on the percentage of spam and fake accounts on its social-media service, claiming they make up more than 20% of all users.
On Tuesday, Musk said he would only go ahead with his offer if Twitter can prove the number is less than the 5% the social media company has reported.
In its proxy statement, Twitter said it’s “committed to completing the transaction on the agreed price and terms as promptly as practicable.”
The board disclosed all relevant details related to Musk’s offer, including how he intends to finance the purchase, the behind the scenes events between the billionaire entrepreneur and Twitter’s executive leadership that led to the offer, and what will happen to shares held by Twitter’s employees and executives if the offer is finalized.
The board cited a host of factors that influenced its decision to recommend that shareholders approve the deal, including an improvement in Twitter’s competitive positioning and prospects if it were to become an independent company, and the board’s belief that the deal has a high level of closing certainty.
The board also listed several risks associated with Twitter’s business model if it were to remain a public company such as the challenge of “making investments, operational changes and improvements (including meaningful cost reductions) to achieve long-term growth and profitability” and “the historical challenges to Twitter’s ability to grow its advertising revenue.”
The filing went on to say that none of the possible strategic alternatives to the merger was likely to present better opportunities for Twitter to create greater value for its stockholders.
The US Securities and Exchange Commission will review the deal – although the regulatory agency generally lacks the power to stop corporate mergers or take-private transactions – and shareholders will vote on approval at Twitter’s annual shareholder meeting on May 25. The proxy statement is critical to persuading Twitter’s shareholders to vote yes as it provides significantly more information than was previously available.
US antitrust regulators are also expected to probe Musk’s purchase of Twitter, but they are unlikely to sue to block it because Musk, who is chief executive officer of Tesla Inc. and Space Exploration Technologies Corp., is a nascent entrant into the social media sector.
Twitter told its employees on April 25 that the deal is slated to close in another three to six months.
But Musk created an air of uncertainty last Friday with an early morning tweet that said the deal to take Twitter private was “temporarily on hold” until he receives more information about the proportion of fake accounts on the social media site, linking to a May 2 Reuters report on Twitter’s most recent disclosure about the number of bots on the platform.
Despite his public comments, the deal’s contract doesn’t seem to give Musk much room to walk away. The merger agreement stipulates that he would owe Twitter a $1 billion breakup fee if he were to cancel the deal. The contract also gives Twitter the right to force Musk to close the deal as long as his debt financing is available.
Twitter also has the right to go to court to force Musk to try to obtain that debt financing.
Twitter’s stock has been dropping on speculation that the deal falls apart. The stock now sits 31% below the price Musk has contractually agreed to pay, closing Monday at its lowest level since March 17.