- Twitter executives accepted an offer from Elon Musk to buy the company for about $44 billion
- Shares in the social media firm currently sit about 8% below Musk's offer price.
- If the deal is approved, Twitter shareholders will receive $54.20 for each share they own.
Twitter's executive board has accepted an offer from Tesla CEO Elon Musk to buy the company and take it private, the social media firm announced Monday.
"Free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated," Musk said in the press release announcing the deal. "I also want to make Twitter better than ever by enhancing the product with new features, making the algorithms open source to increase trust, defeating the spam bots, and authenticating all humans.
"Twitter has tremendous potential," the release went on. "I look forward to working with the company and the community of users to unlock it."
What this all actually means for users of the site will become clearer in the following months as Musk's vision for the platform becomes realized. In the meantime, from a financial standpoint, the details of the deal are relatively straightforward.
Below, experts answer your money questions about what "going private" means for companies and shareholders alike.
Musk agreed to buy Twitter at about $54.20 per share, for a total price tag of about $44 billion. That per-share valuation represents a 38% premium to the firm's share price on April 1 — the day Musk disclosed his 9% stake in the company.
The shares have trended upward since but still sit about 8% below Musk's offer price, a sign that at least some investors are skeptical that the deal will go through.
That's because, if the deal does reach completion (which is contingent upon, among other things, approval from regulators), holders of Twitter stock will receive $54.20 in cash for each share that they own.
The risk: If the deal falls through, either because Musk can't get enough funding or because regulators step in, Twitter shares will likely plummet in value.
The latter scenario is unlikely, says David Sekera chief U.S. market strategist at Morningstar. "The spread [between the current share price and Musk's price Musk offered] is a little surprising, because I'm pretty confident that the transaction will end up closing," he says. "He has equity, and he says he has financing lined up. I don't see regulatory or antitrust issues emerging."
Video by Helen Zhao
If the deal goes through and you receive cash for the Twitter shares you own, it will be treated, taxwise, as though you sold them. If you bought in for less than $54.20, you'll realize a profit on which you'll owe long- or short-term capital gains tax, depending on how long you've owned the shares.
The same thing will happen to managers of mutual funds or ETFs, but they will likely do their best to avoid passing the cash-out on to you. By virtue of their structure, ETFs are considered more tax-efficient than mutual funds and are less likely to trigger a taxable event upon the sale, says Todd Rosenbluth, head of research at ETF Trends.
Video by Jason Armesto
Unless Twitter was a major holding in a mutual fund, you're unlikely to see a tax consequence either, says Sam Stovall, chief investment strategist at CFRA. "Mutual funds sell shares all the time because no one likes to pay taxes," he says. "What your fund will likely try to do is offset the gain by selling something else for a loss to offset it.
As for the effect on the portfolio you own, "the fund gets the cash when the deal closes and redeploys it to other positions in the portfolio as the index is reconstructed," Rosenbluth says. "There should be no notable impact upon closing of the deal to the ETF's share price as the ETF reflects the updated holdings and weights of its underlying index."
When one individual or company buys another firm, the deal generally takes two shapes, says Sekera: Strategic or financial.
Strategic deals are additive. One company acquires another because they think they'll work better together. The acquired company may offer a coveted product or it may fit within the acquiring company's existing business lines.
These are the deals where you hear a lot about "synergies." One company may buy the other, or they may merge.
Financial deals often see private equity firms sponsoring acquisitions of companies at price below what they think the firm is worth. From there, they seek to capture additional value, either by breaking the company up into pieces, installing new management, or reducing inefficiencies.
Musk's deal is idiosyncratic but skews closer to the latter. He thinks he can make Twitter a more valuable company. But that process might be a long-term undertaking, and by pulling the company off of public markets, Musk will be able to make the changes he envisions without having to report to investors and regulators, who expect regular updates.
Video by Stephen Parkhurst
"The move allows him the ability to experiment, test, and implement new technologies and products without being under the scrutiny of shareholders, to whom you have to report earnings every quarter," says Sekera. "He doesn't have to worry about profitability or upholding fiduciary duties."
And while Twitter will still be under the scrutiny of some government regulators, the firm won't have to report financial results to the SEC.
As for why Twitter took the deal, Sekera suggests taking a look at Twitter's long term stock chart. Rarely has the stock traded for more than Musk is offering for sustained periods. "You have to assume they determined his price is in excess of what they thought intrinsic value of the firm is – otherwise they wouldn't have agreed."
Video by David Fang
Probably not. Retail investors generally do not have access to firms that don't trade on public exchanges. Some fancy private equity firms and hedge funds occasionally give their clients access to privately traded firms, but this is typically reserved for high-net-worth investors.
Even if you have bags of money, your chances still may be slim. "Well-heeled investors who have an inside connection with Elon Musk or other investors participating in the deal may be able to get a piece of the action," Stovall says. "Ordinary Janes and Joes would have to wait until it becomes public again."
If that does eventually happen, don't expect it to be cheap, Stovall adds: "The feeling is that Elon would want to sell Twitter back to the public at a higher price than he paid for it."
The views expressed are generalized and may not be appropriate for all investors. The information contained in this article should not be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product. There is no guarantee that past performance will recur or result in a positive outcome. Carefully consider your financial situation, including investment objective, time horizon, risk tolerance, and fees prior to making any investment decisions. No level of diversification or asset allocation can ensure profits or guarantee against losses.
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