44 billion dollars (about 55 trillion won). That’s the amount Tesla CEO Elon Musk has promised to pay to buy a 100% stake in Twitter. It is the 70th largest M&A amount in human history and the largest amount of M&A transactions involving individuals, not corporations, as acquirers. It is possible that Elon Musk is the richest man in history with a net worth of $250 billion (about 320 trillion won). What is interesting is the fact that this acquisition shows very concisely how involuntary and hostile M&A for listed companies works in the United States, the home of capitalism. After Elon Musk announced that he would secure a minority stake in Twitter on the 4th of last month, the whole process was completed in just 20 days until the 100% stake acquisition was confirmed.
Elon Musk
First of all, it’s clear why Elon Musk was interested in Twitter’s takeover. As a devotee of absolute press freedom and an influencer with the 8th-largest number of followers in the world, he has frequently expressed dissatisfaction with Twitter’s ‘political correctness’. One of the important reasons is that Twitter, a company without an owner, has a high possibility of improving its corporate value in the short term as it is being run erratically without a clear direction. Against this background, Elon Musk acquired a 9.1% stake for $2.6 billion (about 3 trillion won) on the 4th of last month and said that he had no plans to participate in management is close to an intentional paint motion. Under the circumstances, the acquisition of the management stake was clear, but there were concerns that if the target was disclosed from the beginning, the stock price would continue to rise and expectations for the management premium would increase, putting a burden on the acquisition price.
Moreover, if the acquisition target is Elon Musk, who is considered the ‘richest man in the world’, the expectations of shareholders will inevitably increase. Elon Musk wanted to completely block this possibility. On the 9th of last month, Elon Musk officially denied the possibility of board participation, which has been continuously raised. It was only on the 14th, when the stock price, which fell slightly after that, entered a sideways state, that it officially proposed to buy a 100% stake in Twitter. When the unexpected hostile M&A situation arose, Twitter’s board immediately took a full-fledged response. The introduction of a ‘Poison Pill’ is mentioned the day after Elon Musk’s tender offer. If the conditions are not met, it has announced that it will block Elon Musk’s takeover of Twitter. Poison pills, which are not permitted under the commercial law in Korea, are a generalized method in developed markets such as the United States as a countermeasure for hostile M&A.
Graphic = Reporter Park Chun-hwan [email protected]
The specific details of the poison pill introduced by Twitter’s board of directors are that if certain shareholders, including Elon Musk, purchase a 15% or more stake by April 14 next year, existing shareholders will be given the right to purchase new shares at a discount. will be. This was aimed at the fact that the number of stocks to be acquired would increase and the attractiveness of the acquisition would be greatly reduced. Of course, this response from the Twitter board is a strategy to gain an advantage in the negotiation process. In other words, it was not a means to block the sale itself. Elon Musk, who detected the signal, submitted a financing plan to the US Securities and Exchange Commission (SEC) on the 20th of last month, and on the 25th, the Twitter board of directors decided to accept the tender offer, which concludes the first act of the Twitter takeover.
However, it is not an easy task for even Elon Musk, who is considered the richest man in human history, to mobilize a total of 55 trillion won. In fact, the battle to take over Twitter enters the second stage as Elon Musk sells his biggest asset, his stake in Tesla, to the market. Oddly enough, on the 20th of last month, when Twitter announced a public buyout, Tesla released its first-quarter earnings that exceeded market expectations. As a result, Tesla’s stock price surged again above the $1,000 level. Taking advantage of the fact that Tesla’s stock price is on a positive trend, Musk sold about 10 trillion won worth of Tesla shares to the market in one week. A large number of listings naturally led to the collapse of Tesla’s stock. In addition, as it became known that the company would receive a loan of about 15 trillion won using the remaining Tesla stock as collateral, many Tesla shareholders are outraged.
Still, the shortfall of 30 trillion won is expected to be secured in two ways. The plan is to raise about 16 trillion won in loans from seven financial institutions and establish a new company called X Holdings to attract investors. In fact, Elon Musk announced on the 5th (local time) that a total of 19 investors were waiting for the funds through documents submitted to the U.S. Securities and Exchange Commission (SEC). Saudi Arabia’s Prince Alwaleed bin Talal, Ellison Oracle founder, Sequoia Capital, Andrison Horowich Capital (A16Z), and Qatar Sovereign Wealth Fund are also listed here.
Whether Elon Musk will be able to finalize the Twitter takeover or the conclusion of the second act before the Twitter takeover is yet to be confirmed. The Federal Trade Commission (FTC) is said to be considering whether Musk’s takeover of Twitter falls under antitrust laws. Local media in the United States expect that guidance from the relevant authorities will be issued at least 30 days after notification of the acquisition transaction. But Elon Musk’s attempt will go down in history as an example of how a very efficient mechanism exists for buying and selling US publicly traded companies that are run on behalf of all shareholders by an independent board of directors without a major shareholder.
A system that allows existing shareholders to purchase shares at a much lower price than the market price in the event of a hostile merger or acquisition (M&A) or management right infringement attempt. The United States, Japan, and France are implementing it, and in particular, in the United States and Japan, it can be introduced only by a resolution of the board of directors.
Cheol-min Lee, CEO of VIG Partners. He holds a BA in computational statistics from Seoul National University and an MBA from Duke University, and worked for the Boston Consulting Group (BCG). He joined VIG Partners as a founding member at the time of establishment of VIG Partners (formerly Bogo Fund) in 2005 and has been the CEO since 2018.