Elon Musk offers to buy Twitter; shares spike, fall back

Posted: 14 April 2022 12:25 pm

Elon Musk offered to buy Twitter (TWTR) at a 38% premium to the price before he announced his stake in the company. A buyout battle could fuel further gains, making the stock a short-term buy. Here’s why.

Billionaire Elon Musk offered to buy all Twitter shares he doesn’t already own at $54.20 a share in cash and said he plans to take the company private.
That sent share prices higher, albeit briefly. Shares jumped as high as $48.50, but near midday had settled back below $46 and near yesterday’s closing price.
Musk has been seeking changes at the social media platform, including the addition of an edit button for tweets. On April 9, he asked his 82 million followers whether Twitter is dying, adding that most of its “top contents tweet rarely and post very little content.”
“Since making my investment I now realize the company will neither thrive nor serve this societal imperative in its current form,” Musk said in a letter to Twitter Chairman Bret Taylor. “Twitter needs to be transformed as a private company.”

Musk versus Twitter

The tussle between the billionaire behind Tesla Inc. (TSLA) and the social media platform has benefited investors. On April 4, when Musk first disclosed his 9% percent stake in Twitter, shares of the social media platform climbed 27%.
While it’s unclear whether he will succeed in taking the company private, his intentions have already fueled volatility. That presents a short-term buying opportunity. But be on the lookout for an exit strategy as the rally may not last.
Here’s what you need to know when weighing whether to add Twitter to your portfolio:
The buyout offer is nonbinding and subject to negotiations and the execution of definitive agreements. While Twitter confirmed the offer, it said in a press release that its board of directors will carefully review the proposal to determine if it’s in the best interest of its shareholders. If that board rejects Musk’s offer, shares could immediately collapse, potentially returning to the level before the billionaire announced his intentions to take the company private.

Of course, Musk could raise his price, although he stated in the letter attached to his filing with the Securities and Exchange Commission that the price is his “best and final offer.” He can always take his battle directly to the shareholders, but that could be a long saga and you should be prepared to decide whether you’re willing to risk it, or exit as prices move higher to lock in your gains.
There are a few other considerations when jumping into Twitter shares now. The company’s 6.37% cashflow margin is the lowest of five similar social media platforms tracked by Charles Schwab. It has a negative 4.36% net profit margin, while the rest of its peers are positive. As of last week, only four of the 41 analysts tracked by Reuters have a buy rating, with the majority suggesting investors just hold on to their stock.
And watch out for the volatility. It could end up moving against you. Today so far is an example. While shares opened higher and jumped to $48.50, they’ve been falling back since.
See our guide to buying Twitter stocks for more information.

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