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Everyone currently holding $TWTR believes that the true value is greater than the current price. To make a successful hostile bid, you need to pay not just "mo

Everyone currently holding $TWTR believes that the true value is greater than the current price. To make a successful hostile bid, you need to pay not just "more than the current price", but "more than the holders of 50% of current shares believe the company to be worth". Usually bidders use analyst price targets to guess at the distribution of holders' internal price targets. This is what makes it so difficult, and why this bid is very likely to be rejected. (This is easier to explain with a white board, tbh.)

bjornsing 4y ago
You explained it perfectly, no white board needed. I can only add one minor point from a general and international perspective: 50% may not always be enough. At least in Sweden I think you need 90% to accept a bid before you can legally force the remaining 10% to sell their shares. Even if you accept that there will be minority shareholders you will need 67% before you can do some things, like e.g. issue new shares without giving minority owners right of first refusal. I'm sure there's a lot of devils in the details all over the world, and I'd be surprised if there are none in the US.
ErikVandeWater 4y ago
You'd have to be really damn sure that Twitter is worth more than what Musk is paying. It's hard to see how an owner of Twitter stock could rationally reject an offer with a guaranteed +38% return. For any serious investor, even if they believe Twitter is worth twice what it is now, they must have several other stocks they believe are also worth twice what they are now. And if Elon bought all of them out at +38% returns, that would be a tremendous year investing.
RC_ITR 4y ago
>Everyone currently holding $TWTR believes that the true value is greater than the current price. This is not exactly true. Everyone holding Twitter believes that it will outperform the next best available asset. This can mean that it will decline less than cash (i.e. inflation) and decline less than other stocks. In our current market, this means people believe that Twitter has a good forward looking IRR, but it does not mean that all holders believe that the stock price should be $70. >To make a successful hostile bid, you need to pay not just "more than the current price", but "more than the holders of 50% of current shares believe the company to be worth". Again, this comes back to IRR terms. Sure Twitter may be worth $100/share ten years from now, but most people would take $50 today than $100 then. >This is what makes it so difficult, and why this bid is very likely to be rejected. The bid is likely to be rejected b/c it's likely made in bad faith. Read the SEC release and count how many times it says ' non-binding'
- RaymondDeWitt 4y ago
  How was Musk's offer - a public disclosure with few conditions or contingencies, made in bad faith? At face value, it does not violate basic standards of honesty or appear to deliberately mislead.
  - jjeaff 4y ago
    It's another 420 reference just like his claim to have financing ready to take Tesla private which turned out to be false and just a joke.
    - deleted 4y ago
      [deleted]
  - mdoms 4y ago
    You mean like his offer to take Tesla private - a public disclosure with few conditions or contingencies?
  - colinmhayes 4y ago
    At face value Musk has a history of paying large SEC fines because he lied to investors.
    - memish 4y ago
      From TED yesterday. "Funding was indeed secured. I should say I do not have respect for the SEC in that situation. I don’t mean to blame everyone at the SEC, but certainly the San Francisco office. The SEC knew that funding was secured. They pursued an active public investigation, nonetheless. I was forced to concede to the SEC unlawfully."
      - colinmhayes 4y ago
        I don't think him saying that makes it true. He certainly never brought Tesla private or brought a serious offer to do so.
fallingknife 4y ago
TWTR was trading at 33 before Elon announced his stake, and he offered 54. That's a 60% premium.
- AustinDev 4y ago
  The board kind of has to put this to a shareholder vote to limit their liability. If they don't, they'll be sued by shareholders very quickly.
  - trident5000 4y ago
    Musk himself will probably sue them immediately as the second largest holder behind Vanguard.
    - Acrobatic_Road 4y ago
      I would never stop laughing if this happened.
- paxys 4y ago
  What happened last week is irrelevant. If I can sell my shares on the market today for $46 and Elon is offering $54, that's a ~17% premium. It's better than nothing but not nearly enough to convince >50% of shareholders to vote in his favor. Several major ones have already said no to the offer (https://www.reuters.com/technology/saudi-prince-alwaleed-bin-talal-rejects-elon-musks-twitter-takeover-bid-tweet-2022-04-14/ https://www.reuters.com/technology/saudi-prince-alwaleed-bin...). If it was a serious offer the market would have already valued TWTR at ~$54, but it has actually gone down after Musk announced his bid.
  - cdash 4y ago
    You can't sell your shares on the market today for $46 as an intuitional investor though, the price will tank.
  - tick_tock_tick 4y ago
memish 4y ago
What happens if they reject his offer? He sells and the price falls. Then he announces a new platform and the price falls again.
- deleted 4y ago
  [deleted]
- knowaveragejoe 4y ago
- evanextreme 4y ago
  the problem is that said "new platform" is doomed to fail, just as every free speech twitter competitor before it (gab, parler, truth, etc). this is an idea thats been attempted numerous times but doesnt succeed because no one wants a platform where they can be harassed. so im not inclined to believe that the share price of twitter will fall once he makes a competitor, because if free speech was truly a differentiator (versus decentralization / federation e.g. mastodon), then these other networks would have actually seen continuous use, but at the end of the day everyone still uses twitter
  - sssilver 4y ago
    > no one wants a platform where they can be harassed I’m not sure whether it’s that, or that simply no one wants a platform everyone isn’t already on. Personally I would absolutely not mind being “harassed” by text, if I was also able to exercise wide spectrum of free speech myself.
    - thwayunion 4y ago
      Getting someone to onboard to a new platform is ultimately a sales job. Selling is about telling people who they want to be, not who they are. A social media platform advertised as a politics-first/free-speech platform is the social media equivalent of a beer ad featuring a divorced balding man at last call in a dingy basement bar. No one aspires to bicker about politics with strangers on the internet, even though in reality that's the engagement that pays the bills.
cwkoss 4y ago
I don't think your argument holds water. If the shareholders are rational and believe the true value is greater than current price, why aren't people buying until it asymptotically approaches that price? Optimism and hopes for future gains aren't priced in because they are fantasy and not yet material.
- sgjohnson 4y ago
  > why aren't people buying until it asymptotically approaches that price? Because the market can stay irrational longer than you can stay solvent.
  - Breza 4y ago
    Well put!
- mupuff1234 4y ago
  With that rational you're also implying that it's never worth holding a stock since there's only potential downside. Which clearly isn't how things work.
- WinstonSmith84 4y ago
  Indeed https://twitter.com/Alwaleed_Talal/status/1514615956986757127 https://twitter.com/Alwaleed_Talal/status/151461595698675712... One can easily imagine how useful it's for such a country like Saudi Arabia to control the #1 worldwide media platform without being too exposed on the frontline (i.e. as a large, but not too much, shareholder).
- georgeecollins 4y ago
  All shareholders may believe the true value is greater than the current price but still not buy or sell at the true value price because they don't know when the company will sell for the true value. You see this when a company makes a bid for another company but the deal hasn't gone through yet. It sometimes trades for a little more or a little less, and that's when a deal has been accepted. When it's a little less, that's because there is some legal risk that the deal won't go through. When it is a little more that is because someone thinks the deal will get held up and renegotiated (like another bidder might show up). So it is possible and common for a stock to be lower then what people expect it to be worth. A really good example of this is when you have a powerful CEO or a person with more voting rights who might hold up a deal for their personal ambition. Think about Shari Redstone at Viacom. Most people think the company is worth more but difficult to sell because she wants to run it awhile to show she can. Twitter is worth a lot but difficult to sell for all the reasons this deal is showing. Supposedly Disney thought about buying it but realized it would be very controversial. When it takes a long time for the right buyer to show up investors trade the stock at a discount. It happens all the time in media stocks. (Full disclosure: I have Twitter stock)
splitstud 4y ago
KptMarchewa 4y ago
Goldman Sachs's price target is 30, while their analysts think the offer is too low.
- lcrmorin 4y ago
  It was 30 when the price was at 33 and musk wasn't on the picture. Someone's buy nearly 10% on the open market then bidding for a significant chunk of the rest is new info.
phkahler 4y ago
The value is based on recent sale prices, not peoples opinions no matter who they are.
bozhark 4y ago
“Easier with a whiteboard” = you aren’t explaining it well
dev_tty01 4y ago
>Everyone currently holding $TWTR believes that the true value is greater than the current price. I don't see how this is relevant. All stockholders of any non-dividend paying company believe the price of the stock will go up. Takeovers with relatively low premiums happen all the time. That being said, Musk is definitely bargain hunting. I think the bid shows he isn't that serious and has no idea how to answer the fundamental monetization questions.
deleted 4y ago
[deleted]
alasdair_ 4y ago
Most of “everyone” holding twitter are index funds that have absolutely no opinion on the matter whatsoever.
- londons_explore 4y ago
  Funds vote the way the fund managers choose. And they tend to do backroom deals with other shareholders to vote a particular way, and such deals can be pretty profitable for their golfing career...
deleted 4y ago
[deleted]

bjornsing 4y ago

You explained it perfectly, no white board needed. I can only add one minor point from a general and international perspective: 50% may not always be enough. At least in Sweden I think you need 90% to accept a bid before you can legally force the remaining 10% to sell their shares. Even if you accept that there will be minority shareholders you will need 67% before you can do some things, like e.g. issue new shares without giving minority owners right of first refusal. I'm sure there's a lot of devils in the details all over the world, and I'd be surprised if there are none in the US.

ErikVandeWater 4y ago

You'd have to be really damn sure that Twitter is worth more than what Musk is paying. It's hard to see how an owner of Twitter stock could rationally reject an offer with a guaranteed +38% return. For any serious investor, even if they believe Twitter is worth twice what it is now, they must have several other stocks they believe are also worth twice what they are now. And if Elon bought all of them out at +38% returns, that would be a tremendous year investing.

RC_ITR 4y ago

>Everyone currently holding $TWTR believes that the true value is greater than the current price. This is not exactly true. Everyone holding Twitter believes that it will outperform the next best available asset. This can mean that it will decline less than cash (i.e. inflation) and decline less than other stocks. In our current market, this means people believe that Twitter has a good forward looking IRR, but it does not mean that all holders believe that the stock price should be $70. >To make a successful hostile bid, you need to pay not just "more than the current price", but "more than the holders of 50% of current shares believe the company to be worth". Again, this comes back to IRR terms. Sure Twitter may be worth $100/share ten years from now, but most people would take $50 today than $100 then. >This is what makes it so difficult, and why this bid is very likely to be rejected. The bid is likely to be rejected b/c it's likely made in bad faith. Read the SEC release and count how many times it says ' non-binding'

RaymondDeWitt 4y ago
How was Musk's offer - a public disclosure with few conditions or contingencies, made in bad faith? At face value, it does not violate basic standards of honesty or appear to deliberately mislead.
- jjeaff 4y ago
  It's another 420 reference just like his claim to have financing ready to take Tesla private which turned out to be false and just a joke.
  - deleted 4y ago
    [deleted]
- mdoms 4y ago
  You mean like his offer to take Tesla private - a public disclosure with few conditions or contingencies?
- colinmhayes 4y ago
  At face value Musk has a history of paying large SEC fines because he lied to investors.
  - memish 4y ago
    From TED yesterday. "Funding was indeed secured. I should say I do not have respect for the SEC in that situation. I don’t mean to blame everyone at the SEC, but certainly the San Francisco office. The SEC knew that funding was secured. They pursued an active public investigation, nonetheless. I was forced to concede to the SEC unlawfully."
    - colinmhayes 4y ago
      I don't think him saying that makes it true. He certainly never brought Tesla private or brought a serious offer to do so.

fallingknife 4y ago

TWTR was trading at 33 before Elon announced his stake, and he offered 54. That's a 60% premium.

AustinDev 4y ago
The board kind of has to put this to a shareholder vote to limit their liability. If they don't, they'll be sued by shareholders very quickly.
- trident5000 4y ago
  Musk himself will probably sue them immediately as the second largest holder behind Vanguard.
  - Acrobatic_Road 4y ago
    I would never stop laughing if this happened.
paxys 4y ago
What happened last week is irrelevant. If I can sell my shares on the market today for $46 and Elon is offering $54, that's a ~17% premium. It's better than nothing but not nearly enough to convince >50% of shareholders to vote in his favor. Several major ones have already said no to the offer (https://www.reuters.com/technology/saudi-prince-alwaleed-bin-talal-rejects-elon-musks-twitter-takeover-bid-tweet-2022-04-14/ https://www.reuters.com/technology/saudi-prince-alwaleed-bin...). If it was a serious offer the market would have already valued TWTR at ~$54, but it has actually gone down after Musk announced his bid.
- cdash 4y ago
  You can't sell your shares on the market today for $46 as an intuitional investor though, the price will tank.
- tick_tock_tick 4y ago

memish 4y ago

What happens if they reject his offer? He sells and the price falls. Then he announces a new platform and the price falls again.

deleted 4y ago
[deleted]
knowaveragejoe 4y ago
evanextreme 4y ago
the problem is that said "new platform" is doomed to fail, just as every free speech twitter competitor before it (gab, parler, truth, etc). this is an idea thats been attempted numerous times but doesnt succeed because no one wants a platform where they can be harassed. so im not inclined to believe that the share price of twitter will fall once he makes a competitor, because if free speech was truly a differentiator (versus decentralization / federation e.g. mastodon), then these other networks would have actually seen continuous use, but at the end of the day everyone still uses twitter
- sssilver 4y ago
  > no one wants a platform where they can be harassed I’m not sure whether it’s that, or that simply no one wants a platform everyone isn’t already on. Personally I would absolutely not mind being “harassed” by text, if I was also able to exercise wide spectrum of free speech myself.
  - thwayunion 4y ago
    Getting someone to onboard to a new platform is ultimately a sales job. Selling is about telling people who they want to be, not who they are. A social media platform advertised as a politics-first/free-speech platform is the social media equivalent of a beer ad featuring a divorced balding man at last call in a dingy basement bar. No one aspires to bicker about politics with strangers on the internet, even though in reality that's the engagement that pays the bills.

cwkoss 4y ago

I don't think your argument holds water. If the shareholders are rational and believe the true value is greater than current price, why aren't people buying until it asymptotically approaches that price? Optimism and hopes for future gains aren't priced in because they are fantasy and not yet material.

sgjohnson 4y ago
> why aren't people buying until it asymptotically approaches that price? Because the market can stay irrational longer than you can stay solvent.
- Breza 4y ago
  Well put!
mupuff1234 4y ago
With that rational you're also implying that it's never worth holding a stock since there's only potential downside. Which clearly isn't how things work.
WinstonSmith84 4y ago
Indeed https://twitter.com/Alwaleed_Talal/status/1514615956986757127 https://twitter.com/Alwaleed_Talal/status/151461595698675712... One can easily imagine how useful it's for such a country like Saudi Arabia to control the #1 worldwide media platform without being too exposed on the frontline (i.e. as a large, but not too much, shareholder).
georgeecollins 4y ago
All shareholders may believe the true value is greater than the current price but still not buy or sell at the true value price because they don't know when the company will sell for the true value. You see this when a company makes a bid for another company but the deal hasn't gone through yet. It sometimes trades for a little more or a little less, and that's when a deal has been accepted. When it's a little less, that's because there is some legal risk that the deal won't go through. When it is a little more that is because someone thinks the deal will get held up and renegotiated (like another bidder might show up). So it is possible and common for a stock to be lower then what people expect it to be worth. A really good example of this is when you have a powerful CEO or a person with more voting rights who might hold up a deal for their personal ambition. Think about Shari Redstone at Viacom. Most people think the company is worth more but difficult to sell because she wants to run it awhile to show she can. Twitter is worth a lot but difficult to sell for all the reasons this deal is showing. Supposedly Disney thought about buying it but realized it would be very controversial. When it takes a long time for the right buyer to show up investors trade the stock at a discount. It happens all the time in media stocks. (Full disclosure: I have Twitter stock)

splitstud 4y ago

KptMarchewa 4y ago

Goldman Sachs's price target is 30, while their analysts think the offer is too low.

lcrmorin 4y ago
It was 30 when the price was at 33 and musk wasn't on the picture. Someone's buy nearly 10% on the open market then bidding for a significant chunk of the rest is new info.

phkahler 4y ago

The value is based on recent sale prices, not peoples opinions no matter who they are.

bozhark 4y ago

“Easier with a whiteboard” = you aren’t explaining it well

dev_tty01 4y ago

>Everyone currently holding $TWTR believes that the true value is greater than the current price. I don't see how this is relevant. All stockholders of any non-dividend paying company believe the price of the stock will go up. Takeovers with relatively low premiums happen all the time. That being said, Musk is definitely bargain hunting. I think the bid shows he isn't that serious and has no idea how to answer the fundamental monetization questions.

deleted 4y ago

[deleted]

alasdair_ 4y ago

Most of “everyone” holding twitter are index funds that have absolutely no opinion on the matter whatsoever.

londons_explore 4y ago
Funds vote the way the fund managers choose. And they tend to do backroom deals with other shareholders to vote a particular way, and such deals can be pretty profitable for their golfing career...

deleted 4y ago

[deleted]