"My offer is my best and final offer," says the narrator.
Elon Musk's $43 billion bid for Twitter takes a page out of Warren Buffett's take-it-or-leave-it-playbook. But investment bankers, investors, and analysts said he needed a blowout offer and more information on his financing to work. They said Musk's track record of reversing his positions also weighed against him.
Buffett is known for concluding large deals with his Berkshire Hathaway Inc subsidiary, such as the $11.6 billion acquisition to buy property and casualty reinsurer Alleghany Corp, and his $37 billion acquisition of Precision Castparts Corp, by making only one offer and refusing to negotiate.
These offers were viewed as fair by their acquisition objectives and supported by commitment financing from Berkshire Hathaway. Musk's bid, on the other hand, was deemed too low by the market and too thin on financing details.
In 2018, Musk, the chief executive and co-founder of Tesla Inc, tweeted that there was "funding secured" for a $72 billion transaction to take Tesla private, but that it was not proceeding with an offer. He and Tesla each paid $20 million in civil penalties, and Musk stepped down as Tesla's chairman to resolve the Securities and Exchange Commission's allegations.
"I would not trust Elon with him," said one law professor at George Washington University. He spoke extensively on Buffett.
Musk and Buffett did not respond to requests for clarification.
Musk's cash offer of $54.20 a share, which has raised $43 billion, represents a 38 percent increase to Twitter's April 1 close, the last trading day before his 9.1% share was publicly disclosed. However, it is lower than how Twitter shares were trading in November. For the majority of 2021, the shares increased by $60.
Uninvolved investment bankers think the most suitable comparison would be PayPal Holdings Inc's offer for Pinterest Inc, which the payment company had refused to receive last October owing to a negative investor response. Pinterest's offer rated Pinterest at 17.4 times sales. By contrast, Musk's offer rated Twitter at only 8.6 times sales.
Twitter's stock market ended Thursday at $45.08, a 1.75% decrease as Musk revealed his $54.20 per share offer, reflecting wide investor skepticism that a deal will be reached.
"I think the Twitter board will have a tough time declaring no to this agreement. It's not an excessive premium and it's not excessively valued today," said Chris Pultz, the portfolio manager for Kellner Capital's merger arbitrage.
A Twitter spokesperson did not respond to a request for clarification.
THIN IN FINANCING DETAILS
Last year, Musk sold over $15 billion in Tesla shares, about 10% of his share in the electric car company, to fulfill a tax obligation.
It's unclear how much of that Musk now has available for a Twitter request, and it's possible that he might sell more Tesla shares or borrow against them. In a regulatory filing on Thursday, he disclosed no details about his financing.
A leveraged buyout is typically 60% to 80% of the debt, thus Musk would likely have to issue an equity check of at least $10 billion. He may request that partners, such as private equity firms, help fund his contribution.
Given the uncertainty about how Twitter might be run if owned by Musk, Musk has criticized Twitter's current governance, but he has not disclosed who the replacement would be. He has also spoken against Twitter's reliance on advertising, despite its vast majority of its revenue.
Musk said in an offer letter that he would reverse his position as a shareholder if Twitter rejected his offer. Later on Thursday, however, he hinted at the possibility of a hostile bid by bypassing Twitter's board.
He tweeted that Twitter shareholders should vote on the proposal and posted a poll requesting that Twitter users approve the topic. Most companies will put a deal to a shareholder vote only once its board of directors has approved it.
Despite Musk's initial offer being "best and final," analysts predicted his chances for a deal would improve significantly, given his capacity as the world's richest man.
"The board may see a case to reject the first offer and investigate options for a higher price," Justin Post, an analyst at Bank of America, said on Thursday.