Twitter acquisition is a modern version of ‘Barbarians at the Door’


First of all, if you haven’t read “Barbarians at the Gate“, which is regarded as the most classic Wall Street M&A and business war related books or movies in history, please find time to read it. At the same time, you can also find a book about the founding of Twitter on the market “Things a Little Bird Told Me” by Twitter co-founder BizBiz Stone.

The transaction details

On April 25, Twitter agreed to an all-cash takeover by Elon Musk at a price of $54.2 per share, or about $44 billion, to complete the transaction by October 24, 2022, and then complete the privatization from the U.S. stock market. Before the acquisition was revealed in the media, Musk had made a statement on Twitter, vowing to build a social networking platform of his own

In fact, when he wrote, he was silently buying Twitter shares in the stock market at this time, It’s just that it hasn’t publicly reported to the SEC, and outsiders have no way of knowing that he was prepared. Twitter shares rose about 30% in the short term after he disclosed his holdings.

Why does Twitter give Musk a chance?

Twitter is not an old technology company such as Microsoft and Apple that has existed for 40 or 50 years. It is a new generation technology company that founded later than Meta and Alphabet. Unlike most tech companies with a dual-class share structure, Twitter wasn’t designed that way. This has made the combined stake of several Twitter co-founders unable to control the voting rights of the company, which is also the fundamental factor that has caused Twitter to experience several major upheavals in the company’s history; some of the more famous are the constant replacement of management team, the challenge of external active shareholders, and this acquisition that Musk has a chance to take advantage of.

My personal opinion is that several of Twitter’s co-founders have a certain idealism and romanticism that is rare in the tech world, and they rarely use a business perspective as the consideration or starting point for all major decisions. In 2014, the two main co-founders and the CEO at the time had a total of only 14.8% of the company’s shares. Dorsey, who has just stepped down as CEO, currently has only 2.4% of the shares. In order to boost the company’s morale when he returned as CEO, he also voluntarily donated his shares to employees. This is also the reason why his shares have shrunk from 4% to 2.4% for one of the reasons.

In 2014, the two main co-founders and the then-CEO accounted for 14.8% of the company. Founder Dorsey, who has just stepped down as CEO, is currently only 2.4%. I’ve written two articles about Dorsey before, “Incredible Bitcoin fanatical supporter, Jack Dorsey“, and “Introducting Jack Dorsey, the low-key Silicon Valley leader“.

Long-standing unanswered question

The problem with Twitter is that the money it makes is simply out of proportion to its influence, and the company’s ability to monetize has been questioned by all parties. This matter was brought to the table in 2020 by Elliott Management, a private equity fund with a 4% stake, known as the most activist on Wall Street, demanding the removal of the CEO and unlocking the potential value of the company. This resulted in nominating Elliott to the company’s board of directors and $2 billion stock repurchase plan. In February, the company announced an additional $4 billion repurchase.

The products of the Meta family are, in comparison, viral community platforms. Meta design all his product with monenitzation in mind. That is to say, the designs of the products of the Meta family make monetization easier, but Twitter has always been a community platform with a sense of mission from beginning to end. The common goal of several co-founders of the company is to develop an influential, a platform that does not compromise with reality or business, which also makes Twitter and the Meta family of products fundamentally different, making Twitter concise (it still has a limited number of characters when you post Twitter message), and engineering efficiency first; of course, end up the difficulty to monetize the Twitter.

WeChat currently has more than 1.262 billion users, deeply tied to the daily life of Chinese people, and after more than ten years of development, the current WeChat ecosystem is large and strong, and its influence has penetrated into all parts of the Chinese Internet world. It is difficult to have alternative products in a short period of time, so in the short to medium term, the same problems as Weibo and Twitter will not occur.

Twitter has fallen behind in terms of user numbers. The platform now has 229 million users, while Instagram has 2 billion users. The latecomer TikTok announced in September last year that global active users exceeded 1 billion. If you include China’s Douyin , Toutiao, Xigua Video and other products have 1.9 billion users, and the number of users of Snap is also 600 million. Compared with them, the user scale is very different.

Table 1 is a comparison of various key figures of Twitter and major competitors. Twitter’s revenue in 2021 is $5.08 billion, up 37% year-over-year, with a net loss of $221 million, and its core business ad click-through rate is declining because it is difficult to attract users to click on ads. In product mode, Twitter’s main advantage is text-based social media. Text is obviously at a disadvantage in a modern society that pays attention to sound and light effects and rich content. It is not only as rich as Meta’s Facebook, the leader in the field of graphics and text, Instagram, the photo-sharing Snap, and the competitor in the short-video field TikTok.

CompanyTickerMarket capitalization (billion)Share priceP/EMAU (million)ARPU

Table 1: Comparison of key figures of Twitter and competitors (source: financial reports of various companies, Yahoo Finance)

The same thing happened on Weibo, a copy of Twitter by Sina in China. The positioning of both is highly customized for opion leaders, celebrities, internet celebrities, enterprises, and organizations. Twitter and Weibo focus on how much voice these opinion leaders can attract and how many people they can influence. It is a one-to-many platform that values opinion leaders from top to bottom. But Meta or other social networks are many-to-many, viral social platforms.

Weibo is only used in Chinese, which makes it more difficult to monetize. When the number of users can no longer be increased, it will make operation growth more difficult (please note that the ARPU value of Weibo in Table 1 is particularly low). In turn, Sina, the parent company of Weibo, was under high pressure. Therefore, Sina has delisted and completed its privatization from the US stock market in March 2022, and plans to return to China for listing.

Musk’s five-year plan for Twitter

According to a report in The New York Times, Musk announced that after taking Twitter private, his 2028 goals for the company five years from now are as follows:

  • Revenue increased to $26.4 billion, a more than fourfold increase from about $5.1 billion in 2020.
  • Advertising revenue will reach $12 billion, but its share will fall to 45% from 90% in 2020.
  • Build paid membership service Twitter Blue into a second growth curve to $10 billion. The number of users will reach 69 million in 2025.
  • Expanded payments business revenue to $1.3 billion. At present, Twitter’s payment business is mainly tipping and shopping, and the scale is negligible.
  • Average revenue per user (ARPU) increased to $30.22 from $24.83 in 2020.

In addition, Musk pointed out in a tweet: “Twitter is always free for general users, but corporate/government users may pay a small fee.” According to reports, Twitter has recently tried to expand its business into other areas such as subscriptions. The subscription service launched last summer for $2.99 a month.

Why did Musk have to buy Twitter?

Musk has more than 80 million Twitter followers. In the past 11 years, he has posted more than 17,200 statuses on Twitter, often making some “amazing” remarks, either for product marketing of Tesla anf SpaceX, or for current global hot topics. Therefore, he himself said that Tesla does not need media public relations, and he does it alone.

He even acts as Twitter’s product manager from time to time, making suggestions and complaints about its features. On Twitter, he went out of his way to stand up for Tesla, SpaceX, and even Dogecoin. Just last December, Musk posted a tweet claiming that Tesla could support Dogecoin for payment transactions in the future, which led to a 33% increase in Dogecoin in 24 hours.

After Trump’s stepped down, Twitter closed his Twitter account, which aroused Trump’s dissatisfaction. In order to give himself a similar channel to speak out, Trump also established his own company and developed his own social network platform wants to replace his favorite Twitter.

Whoever controls Twitter controls the direction of the global discourse power. As an opinion leader in the technology circle, it would be great if he could control a media platform that speaks for itself for a long time. Others speculated that it was because of the grievances between Musk and the SEC, that he was banned from Twitter in order to prevent the operation of the SEC.

I personally think that Musk is interested in the following two points, so it is necessary to acquire Twitter:

  • The status of Twitter is unparalleled in the unique global position of social networks. Whoever controls Twitter controls the global discourse power and the direction of public opinion.
  • When it comes to business operations, Twitter is a failing. In terms of commercial interests, the company’s operations have great potential for growth and profit, and acquisitions can kill two birds with one stone.

The chain effect caused by this acquisition

Musk’s acquisition of Twitter has sparked a flurry of conversations about mergers and acquisitions, equity, boards of directors, regulations, and more. From the point of view of the average investor, this is not a bad thing, because it is the headline of Wall Street and the technology world – a modern version of “Barbarians at the Door”. With high media exposure, through detailed media reports, ordinary investors can use this actual case to learn about many related mergers and acquisitions, regulations, fund raising, and practical application of interests. So far, the acquisition has sparked at least the following discussions:

Musk announced that he bought Twitter 11 days later than regulation, earning an additional $156 million. The law requires that the SEC be notified when the holding ratio exceeds 5%. The standard was met on March 14, but he disclosed it 11 days later. Continued buying at around $39 per share brought the stake to 9.2% before disclosure; prompting FTC and SEC investigations.

On April 4, he became the largest individual shareholder with a 9.1% stake in the SEC’s Form 13G for general passive investors. But re-submission of the 13D form used by active investors involved in relevant corporate governance the next day shows that he intends to be more active in Twitter’s operations.

Forgo joining the board so that the stake doesn’t have to be capped at 14.9%, making an acquisition justified. Twitter’s board has also considered a poison pill to prevent him from going ahead with a hostile takeover. But he then made a takeover offer to buy shares directly from shareholders, and the board eventually agreed to be taken over.

As the acquisition amounted to $44 billion, Morgan Stanley and other banks agreed to provide $13 billion, and Musk would raise another $33.5 billion, including $12.5 billion in Tesla stock pledges. Another $21 billion may have to sell or pledge his stakes in unlisted companies SpaceX and Borning Hyperloop, Tesla shares, plus possible participation from private equity players such as Apollo Global Management and Thoma Bravo. But after his stock sale was revealed, Tesla’s stock has been on the decline ever since. The move sparked a class-action lawsuit from Tesla shareholders, which took him to court.

Musk later said that before he knew the number of fake accounts such as bots on the platform (generally estimated to be at least 5%, Meta was also questioned by advertisers many years ago for this issue that was exposed on various social networking platforms), this deal is on hold for now, suggesting he may seek to renegotiate for a lower price.


Opposition to the takeover

There are also many opponents of this acquisition, the following are some of the more representative ones:

  • Twitter shareholders believe that Musk has underestimated the true value of his platform, and the Saudi prince has come forward to make it clear that he will not agree. Since 2015, Saudi Arabia’s Prince Walid bin Talal has successively held a 5.2% stake in Twitter.
  • After privatization, Twitter’s cultural value has changed. Twitter has so far left three top executives after the acquisition was made public, and the company is panicking. Culture refers to the issue of treating minority employees. Tesla has a “negtive record” in this matter. In February this year, Tesla was sued by the California Department of Fair Employment and Housing for alleged racial discrimination.
  • The real purpose of Musk’s privatization offer is unclear. Musk’s own explanation to the outside world is that he wants to have an “inclusive free speech stage,” but he has been criticizing the Twitter platform for free speech. Exactly where Twitter is going, no one knows.
  • The Open Markets Institute has called on the FCC, FTC, and DOJ to block Twitter’s acquisition of Twitter because it’s a direct threat against the U.S. democracy and freedom of speech. FCC Commissioner Brendan Carr responded that the FCC has no authority to block the acquisition of Twitter.

I am the author of the original text, the abridged version of this article was originally published in Smart monthly magazine.

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