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There’s an alternative explanation to why the board did what they did: Musk has played fast and loose with “I have the funding for this deal” and “I am correctl

by 542458 5y ago

There’s an alternative explanation to why the board did what they did: Musk has played fast and loose with “I have the funding for this deal” and “I am correctly disclosing my share purchases” in the past. The poison pill was a way to get him to slow down and talk to the board and get his lawyers to sit down with their lawyers and make sure this wasn’t going to be another “I’m taking Tesla private” moment. (not saying you’re wrong, both or neither of these may be true)

tptacek 5y ago
Sure, I'm not unbiased here and am framing this in the way least favorable to Musk --- that if a board is going to accept a first (=chuckle= no, "final") offer from a bidder, it's because the price is more than the board thinks the company is worth. But it's also true that they may have done that calculation quickly, and that really they were just making sure this wasn't an elaborate joke. Part of my analysis is based on the rumor that Twitter completed a valuation over the weekend, and it wasn't super favorable. But I've got no reliable reporting that establishes that. Either way, my real point is just that the board could easily have stopped this deal if they wanted to; in fact, they didn't even have to do anything to do stop it.
- whatshisface 5y ago
  Musk probably had to overpay, otherwise they wouldn't want to sell it.
  - resoluteteeth 5y ago
    Of course. It is standard to pay a premium over the share price in this situation.
    - tptacek 5y ago
      We're not talking about the share price, we're talking about the company's projected valuation.
      - resoluteteeth 5y ago
        The share price reflects the market's valuation of the company, and shareholders are not going to want to sell for a price less than the current share price plus a premium. Maybe if the board had information that hadn't been published yet showing that the company's financials had completely tanked since the last earnings report it would be different, but other than that, Twitter's financials are obviously public, and even if the board used something like the DCF method and obtained a number much lower than the market cap, that has absolutely no bearing on whether they would accept a certain price from Musk. So, no, it's really the share price that matters in this situation. Also, even if you're purely talking about valuations, there are other common valuation methods like the comparable method that look at what similar companies have received based on their share price, so the idea that the board would decide to sell purely based on cashflow projections is not correct.
        tptacek 5y ago
        No, that's not true. The board's job is to determine how far off the share price is from what they believe the company is worth based on their own internal projections. The board is certainly not expected to take the spot price of Twitter common stock as the ground truth of the company's valuation.
        leaflets2 5y ago
        I think that's what GP said/meant, when s/he wrote: > Maybe if the board had information that hadn't been published yet [...]
        tptacek 5y ago
        Of course the board has information that hasn't been published yet. Every board does.
        ImPostingOnHN 5y ago
        It sounds, then, like you're agreeing with the post you replied to, which seems to already include the caveat you brought up

by 542458 5y ago

tptacek 5y ago

Sure, I'm not unbiased here and am framing this in the way least favorable to Musk --- that if a board is going to accept a first (=chuckle= no, "final") offer from a bidder, it's because the price is more than the board thinks the company is worth. But it's also true that they may have done that calculation quickly, and that really they were just making sure this wasn't an elaborate joke. Part of my analysis is based on the rumor that Twitter completed a valuation over the weekend, and it wasn't super favorable. But I've got no reliable reporting that establishes that. Either way, my real point is just that the board could easily have stopped this deal if they wanted to; in fact, they didn't even have to do anything to do stop it.

whatshisface 5y ago
Musk probably had to overpay, otherwise they wouldn't want to sell it.
- resoluteteeth 5y ago
  Of course. It is standard to pay a premium over the share price in this situation.
  - tptacek 5y ago
    We're not talking about the share price, we're talking about the company's projected valuation.
    - resoluteteeth 5y ago
      The share price reflects the market's valuation of the company, and shareholders are not going to want to sell for a price less than the current share price plus a premium. Maybe if the board had information that hadn't been published yet showing that the company's financials had completely tanked since the last earnings report it would be different, but other than that, Twitter's financials are obviously public, and even if the board used something like the DCF method and obtained a number much lower than the market cap, that has absolutely no bearing on whether they would accept a certain price from Musk. So, no, it's really the share price that matters in this situation. Also, even if you're purely talking about valuations, there are other common valuation methods like the comparable method that look at what similar companies have received based on their share price, so the idea that the board would decide to sell purely based on cashflow projections is not correct.
      - tptacek 5y ago
        No, that's not true. The board's job is to determine how far off the share price is from what they believe the company is worth based on their own internal projections. The board is certainly not expected to take the spot price of Twitter common stock as the ground truth of the company's valuation.
        leaflets2 5y ago
        I think that's what GP said/meant, when s/he wrote: > Maybe if the board had information that hadn't been published yet [...]
        tptacek 5y ago
        Of course the board has information that hasn't been published yet. Every board does.
        ImPostingOnHN 5y ago
        It sounds, then, like you're agreeing with the post you replied to, which seems to already include the caveat you brought up