Breakingviews: Twitter can afford to refuse Musk’s $41 bln bid

There are offers that are too good to refuse. Elon Musk’s $41 billion bid for Twitter is not one of them. The world’s richest man says he will pay $54.20 a share for the social network, but may sell his 9% stake if the company rejects his non-binding offer, which he describes as “best and final.” Twitter has multiple reasons to hold out for more.

If this were a standard takeover, the price might look compelling. Musk is dangling a 38% premium to the last closing price before he unveiled his stake on April 4. Twitter’s business is expected to throw off about $400 million of operating profit in 2024, according to forecasts compiled by Refinitiv. After deducting tax, and factoring in Twitter’s roughly $2 billion of net cash, Tesla’s boss would earn a return of roughly 1% on his investment.

Twitter’s board said on Thursday it is carefully examining the offer. That’s a welcome change from the three-paragraph agreement directors hastily extracted from Musk when inviting him to join the board on the day he unveiled his stake. They cannot ignore the entrepreneur and his 82 million followers. But they are right to be careful.

The main problem is taking Musk at his word. It’s less than a week since Musk walked away from the deal to buy no more than 14.9% of the company. In 2018, he claimed he had secured financing to possibly take Tesla private, but that turned out not to be true. Musk’s offer also depends on government approvals and due diligence, giving him potential excuses to back out. Musk’s late disclosure of his initial Twitter stake might also delay the process.

Musk’s offer depends on completing financing, though that should be less of an obstacle. He sold over $16 billion in Tesla stock last year, and still owns a roughly 17% stake in the $1 trillion automaker. Banks have been happy to lend against Musk’s shares in the past.

Then there’s the question of price. Twitter’s stock was trading about 30% higher than the bid in the summer of 2021. Companies like Disney and Salesforce.com have kicked the tires at Twitter in the past and might jump in if the company put itself up for sale.

After an initial pop, Twitter shares were trading at around $47 on Thursday morning, suggesting that investors doubt that Musk is serious. The board can afford to be equally skeptical.

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BREAKINGVIEWS