At this point, the headlines about Elon Musk's move to potentially acquire Twitter (TWTR) look like they'll go on forever. The Tesla (TSLA -2.73%) CEO, who has been very transparent about his criticisms of the popular social media company in the past, began by purchasing a 9.2% stake in Twitter in early April, worth almost $3 billion at the time of the transaction.
From there, the situation quickly escalated -- Musk offered to buy the company in its entirety on April 25. Since then, there have been several reports expressing skepticism as to whether or not the buyout will actually occur. Twitter shares have surely suffered from the ambiguity, down 23% in the past month after experiencing a notable boost at the onset of the news.
With all that in mind, here's what investors need to know about the deal, in addition to the likelihood of it going through.
Image source: Getty Images.
Terms of the deal
In late April, Twitter's board of directors accepted a $44 billion bid by Musk to take the social media company private. The purchase price valued Twitter at $54.20 per share, translating to a 38% premium over the company's closing price on April 1. Fast-forward to today, and the deal has yet to close and shares of the social media juggernaut are trading at a steep discount to Musk's original offer. As a result, many investors are now doubting if the Tesla CEO will carry through with the initial agreement.
On May 13, Musk revealed on Twitter that the deal was temporarily on hold pending additional information regarding spam accounts, but he followed up that statement by tweeting that he was "still committed to [the] acquisition." Following those comments, Musk claimed at a technology conference in Miami that spam bots may represent up to 25% of total users on the social media platform, as opposed to the 5% previously suggested by Twitter's management. A larger showing of these automated marketing tools leaves less room for human interaction and arguably lowers the value of the Twitter platform. The controversial CEO also proceeded to announce that negotiating a cheaper price for the deal was not off the table.
Parag Agrawal, Twitter's CEO, responded to Musk's strong accusations by providing the company's procedure for how it calculates its number of bots. Musk didn't appear to be sold, however, responding to Agrawal's thread of tweets with a simple poop emoji. He followed up by asking how advertisers know what they're getting for their money, to which he received no reply. We'll have to wait and see what happens next, but to date, investors have been left with a cliffhanger.
What's this mean for investors?
The fresh news has triggered an immense amount of confusion surrounding the acquisition. Is Musk trying to back out of the deal altogether, or is all of this just a tactic to land a cheaper buying price? It's all very unclear, which poses a lot of negative sentiment on Twitter's stock. Until the news is thrashed out, it's not unlikely that the company's share price will continue to face significant downward pressure. And given the antagonistic view of the technology sector in general at the moment, Twitter could be heading toward a dark place in the near future.
Even for Musk, negotiating a new deal won't be an easy task. Not only do its initial terms contain a $1 billion breakup fee, but the fine print also includes a clause that would allow Twitter -- under certain circumstances -- to sue the billionaire CEO if the deal isn't completed. Investors should definitely stay on the sidelines for now. Why chase such an uncertain situation when there are plenty of great buying opportunities elsewhere on the stock market today? Musk continues to muddy the waters, and until investors are presented with reliable information, buying Twitter shares would be an extremely dicey move.
