The news overshadowed Twitter's regularly scheduled annual
shareholder meeting earlier Wednesday. Shareholders didn't address the Musk
deal directly — that vote will be scheduled for an as-yet undetermined future
date, should the deal proceed. Twitter shares jumped 5.5% to $39.22 in
after-market trading, building on a 3.9% rise during regular trading.
The financing changes outlined in a regulatory filing would
shave $6.25 billion from the lending package Musk had previously lined up for
the Twitter buyout. That means Musk will need to raise that sum in stock
commitments instead of debt. That would bring the equity — that is, stock-based
— portion of the deal to $33.5 billion, up from the $27.25 billion Musk
disclosed three weeks ago.
The filing with the Securities and Exchange Commission
didn't go into much detail on where Musk will get the additional equity, but
emphasized he is still trying to persuade his friend and former Twitter CEO
Jack Dorsey — a supporter of the buyout — to throw his stock into the financing
package.
Dorsey, also a Twitter cofounder, owns a 2.4% stake
currently worth about $700 million, based on the company's closing stock price
Wednesday, according to FactSet Research. Musk owns a nearly 9.6% stake worth
$2.7 billion.
Wednesday was also Dorsey's last day as a member of
Twitter's board, a date established when he resigned as CEO last November.
The nuts and bolts of the financing package weren't as
significant to investors as the news that Musk apparently still plans to
complete his Twitter buyout. Serious doubts about Musk's resolve have hung over
the deal since he announced he was putting it “on hold"— something experts
say he can't really do unilaterally — until Twitter provide public proof to
support its claims that fewer than 5% of its accounts are fakes powered by spam
bots.
Even assuming the share price rise continues into regular
trading Thursday, Twitter is still changing hands well below the $54.20 per
share that Musk agreed to pay just a month ago.
Wedbush Securities analyst Dan Ives said the persistent gap
between Musk's offer price and Twitter's stock price indicates that most
investors still believe the billionaire will walk away from the deal unless the
company agrees to a lower price. Twitter's board has so far insisted it won't
do that.
Earlier this week, Ives estimated that there was a 60%
chance that Musk would call off the Twitter deal and pay a $1 billion breakup
fee, risking a potential lawsuit by the company. With Musk now trying to secure
a new financing package, Ives believes there is a 50-50 chance of the deal
happening, but only if Twitter's board is willing to sell for significantly
less than the agreed-upon price. “Musk is hedging his bets here, but the big
elephant in the room remains," Ives said.
Twitter dealt with another potential headache Wednesday by
agreeing to a $150 million penalty to settle allegations that it violated its
users' privacy to help sell advertising from 2013 to 2019 in a case brought by
the U.S. Department of Justice and Federal Trade Commission.
Earlier at the shareholder meeting, CEO Parag Agrawal stated
up front that that executives wouldn't be answering any questions surrounding
the Musk bid. Even a question from a stockholder asking what will happen to his
shares if someone buys Twitter and takes it private was shot down. (If this
happens, the stockholder would be paid the agreed-upon purchase price for each
share and the stock would be delisted).
Musk did not join the meeting, although he could have, being
one of Twitter's largest shareholders.
But the drama surrounding his offer — almost all of it
created by Musk himself — threatened to spill over into Wednesday's
proceedings. Shareholders raising proposals for a vote frequently invoked his
name. One proposal, by the New York State Common Retirement Fund, called for a
report on Twitter's policies and procedures around political contributions
using corporate funds. It passed in a preliminary vote.
Two proposals brought by conservative-leaning groups failed
to garner enough votes to pass. One called for an audit on the company's
“impacts on civil rights and non-discrimination” and referred to “'anti-racism'
programs that seek to establish ‘racial/social equity’” as “themselves deeply
racist.” The other sought more disclosure on the company's lobbying activities.
Several proposals spoke to the deep existential conflict
that's been playing out among Twitter's users, employees, shareholders and
employees. While shareholders on one side lambasted the company for what they
see as too-liberal politics and a bias against conservatives (for which there
is no reliable evidence), others said the company is failing to protect users
from harassment, abuse and misinformation.