Elon Musk moves markets.
He is the wealthiest person in the world, lead’s the planet’s largest electric vehicle producer, and aspires to send mankind to Mars. So, when he decided he wanted to buy Twitter and then later backed out, his power over the company’s stock was clearly evident.
Twitter’s stock has been mercurial since Musk declared he would purchase the company, with investors essentially placing bets on the machinations of the eccentric billionaire, leading the company’s value to pingpong.
“He’s probably the one person … that can literally move a market in a particular stock or a commodity relative to anyone else in the world, and I almost think he does it because he can. It seems to be an ego thing, but it’s not good for shareholders at all,” Thomas Smythe, a finance professor at Florida Gulf Coast University, told the Washington Examiner,
The story began more than a year ago as Musk, a compulsive tweeter, took to the platform to opine on the state of free speech on social media.
“A lot of people are going to be super unhappy with West Coast high tech as the de facto arbiter of free speech,” he tweeted just days after the Jan. 6 riots when Twitter suspended then-President Donald Trump’s account and Amazon kicked right-wing social media platform Parler off its web hosting service.
In March, before it was revealed that Musk had already begun buying stock in Twitter, he put out a poll that portended the roller coaster that was about to come.
“Free speech is essential to a functioning democracy. Do you believe Twitter rigorously adheres to this principle?” Musk asked his 79 million followers. “The consequences of this poll will be important. Please vote carefully.”
Some 70% think that they didn’t rigorously adheres to the principles of free speech.
Then, in April, Musk revealed that he purchased a 9.2% stake in the company the month before. The day that Musk’s purchase was revealed, Twitter’s stock exploded in value, increasing by 27.12% on that day alone, boosting Musk’s return on investment.
If Musk had purchased all of those more than 73 million shares on the March date when the Securities and Exchange Commission filing was submitted, their value would have ballooned by more than $1.2 billion at close on the first day his purchase was revealed, a 51.3% return.
And then, Musk offered to purchase the popular social media company for $54.20 per share in cash, which would amount to an approximately $44 billion deal.
At first, Twitter’s board tried resisting the buyout by unanimously voting to adopt a “poison pill,” which is the name for a strategy that can help block companies from being acquired in hostile takeovers. It allows the market to be flooded with new shares should an investor decide to buy up more than a pre-set percentage of a company’s stock.
But the board relented after a weekend of negotiations and agreed to sell the company to the billionaire, who said he planned to take it private.
“The Twitter Board conducted a thoughtful and comprehensive process to assess Elon’s proposal with a deliberate focus on value, certainty, and financing,” said Bret Taylor, Twitter’s board chairman. “The proposed transaction will deliver a substantial cash premium, and we believe it is the best path forward for Twitter’s stockholders.”
On April 25, the day that the board agreed to let Musk take it over, Twitter’s stock hit a year-to-date zenith, closing at $51.70 per share. Shareholders who bought stock in the company just two months prior saw the value of their investment increase by 46%.
Shareholders rode the wave of the news for more than a week, with Twitter stock prices vacillating around $50 per share during that period of time.
And then, it all began to unravel.
In the early hours of May 13, Musk announced that the historic deal was “temporarily on hold.” He cast doubt on Twitter’s claims that fake accounts, or spam bots, comprised less than 5% of users. The missive threw Twitter’s stock into a tailspin, with investors offloading shares for fear that the whole deal would fall apart and that the bots were just a pretext for Musk to withdraw.
Shares of Twitter plummeted more than 10% at market open after Musk said that the deal was on the rocks.
Musk further rattled shareholders on May 17 when he tweeted: “My offer was based on Twitter’s SEC filings being accurate. Yesterday, Twitter’s CEO publicly refused to show proof of <5%. This deal cannot move forward until he does."
By May 24, Twitter’s stock had slumped in value to just $35.76 per share, a nearly 37% decline from the day that Twitter’s board agreed to let Musk buy the company. All the gains that investors ate up during the period had been essentially wiped away.
And then, on July 8, a Friday, Musk gave notice that he was seeking to terminate his acquisition of Twitter just three months after it was announced. By the end of the market close the following Monday, Twitter’s investors were down another 11%. The stock was right back where it was in early March.
Now, the future of the deal is uncertain.
Twitter responded to Musk’s pronouncement by suing him in the Delaware Court of Chancery, setting up a legal battle in which Twitter will try to force him to follow through on his $44 billion purchase. The company has accused Musk of attempting to get out of the deal due to the plunging price of Tesla stock.
“Rather than bear the cost of the market downturn, as the merger agreement requires, Musk wants to shift it to Twitter’s stockholders,” the suit reads. “This is in keeping with the tactics Musk has deployed against Twitter and its stockholders since earlier this year, when he started amassing an undisclosed stake in the company and continued to grow his position without required notification. It tracks the disdain he has shown for the company that one would have expected Musk, as its would-be steward, to protect.”
Musk has several arguments to justify his exit from the deal, the main one (which has only succeeded in the Delaware Court of Chancery once) is that Twitter misled him by claiming only 5% of its active users are spam bots and the alleged misrepresentation could cause a “material adverse effect” on the company.
The roller coaster ride that investors went on speaks to how much power Musk has to move markets.
Musk found himself in hot water after a controversial tweet in 2018. He wrote he was considering taking Tesla private after its share price reached $420, adding, “funding secured.” The stock exploded in value after the cheeky tweet, which is a reference to marijuana, rising 11% the afternoon of the tweet. The SEC sued Musk in response, although they reached a settlement soon after.
The Tesla founder also led hordes of his followers to gobble up the meme cryptocurrency dogecoin, despite it starting as a joke. The price of dogecoin skyrocketed from being worth just a fraction of a penny at the end of 2020 to more than 70 cents just months later as Musk drew attention to the coin and associated memes.
“He has this cult following that pretty much anything he says or does, people jump on the bandwagon. And of course, he’s already been in trouble with the SEC as it applied to Tesla stock,” Smythe said. “It will be interesting to see if the SEC gets involved in this particular case.”
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