Twitter and the Elon Bid: An Analysis

Why the 04/14 Twitter price action is really weird and presents an opportunity.

Market participants are not giving Elon Musk enough credit for his uh freaking almost 3 billion dollar stake in Twitter. The man has never put down that much money for any company ever. Not even SpaceX probably. So I actually think he wants Twitter pretty badly.  

Second, I also think Elon is not serious about his bid but not in the sense that most think: he wants Twitter but his bid is definitely not a final offer. I think the actual number he gave, 54.20, is likely a joke. He will go higher if he needs to. Perhaps even 69 since Twitter’s 52-week high is around 77 dollars a share.  

So I think most people’s analysis stops here but there are important second-order effects this bid has on other interested parties and the Twitter management. Twitter is not good at generating cash flow and people know this. But the platform is incredibly important and valuable. So Elon’s bid will entice other buyers to step in. And if the Twitter board wants to fend off Elon but not crater its stock, it must look for another buyer or investor either to get acquired or find someone who will take off Elon’s shares out of his hands. I think basically a poison pill provision is the worst-case scenario and is highly improbable. There is a very very low chance that the board just flat out reject Elon’s offer without another buyer/investor waiting in the wings and letting the stock crater back to pre-Elon investment or lower. Although the offer is on the low side, it is generous in the current market conditions. But the market seems to disagree and has priced in a higher probability that the worst-case scenario will occur. 

The other thing is I think Elon’s bid will be the lowest bid out of multiple. In fact, there is already a rumor that Thoma Bravo is interested in a deal. The reason why I think Elon’s bid will be the lowest is that 54.20 is actually a pretty lowball offer. Second, his acquiring it will be the least liable to antitrust concerns because Tesla is a car company primarily. It’s gonna be much easier for the acquisition to pass for him versus Facebook or Microsoft obviously. Because the risk of regulatory roadblocks is much lower for Elon, the price he will pay is probably lower. I also think the general distaste against Elon from the Twitter board and employees is actually going to make a high price acquisition more probable and make the base case in the near future be an above $55 a share acquisition. The Twitter board is probably canvassing for other buyers right now and almost all of these buyers will pay a higher price for Twitter than Elon. So Elon acquiring Twitter may not be the best outcome in the short term for me and the other bullish traders. I think the stock should trade around 54 soon. Maybe even on Monday or Tuesday. 

Twitter stock is a buy at around 45. Personally playing this with longer expiry and in the money calls.

This what I’m personally doing and my own viewpoints. Not investment advice.