Elon Musk sent Twitter (TWTR) stocks soaring last week after he revealed – rather fittingly – through a tweet that he had filed an offer with the SEC to buy the American social media company. The stock rose more than 18% at its peak, and retained a 5% increase in price through Tuesday morning.
If successful, the purchase would be a momentous move of historical proportions for the social media space. Musk has voiced support for establishing greater focus on freedom of speech in Twitter’s company policies and has spoken critically of company leadership.
Despite the topic’s dominance of financial news headlines for the past week, it remains unclear whether Musk would be able to secure funding for the bid.
“Elon Musk’s bid seems completely unserious, as opposed to actual, serious tender offers,” Georgetown University Professor of Law and Associate Dean for Academic Affairs Urska Velikonja told Yahoo Finance Live in a recent interview. “It’s not actually a firm commitment to buy all shares of Twitter. It’s just, sort of, a notice that ‘I’m interested in buying all of Twitter.'”
Velikonja, who specializes in securities regulation and enforcement, noted that there’s a “very big, serious question about Elon Musk being able to secure financing,” especially because the entire process happened over a relatively short period of time.
“Hostile takeover offers typically develop over time as the potential bidder tries to negotiate with the board to acquire the company in a friendly manner,” she said. “And so the reason Musk just skipped over that step, seems to me, is that he wants the publicity. That’s the ultimate objective here.”
Musk offered a price of $54.20 a share which amounts to a value of about $43 billion. The company has an existing market valuation of about $37 billion.
If the Tesla (TSLA) founder and CEO is serious about the takeover, he would have a couple of options for funding. Media pundits have suggested the possibility of a partnership with other big-name Wall Street players that have expressed interest in Twitter, like Apollo Global (APO) — the parent company of Yahoo —and Morgan Stanley (MS). However, this would require Musk to give some control to these organizations, thus diluting his own power in the company.
Another possibility includes a “tender offer,” which Musk cryptically alluded to in a tweet. If he took this route, shareholders would have the opportunity to directly sell their stocks to Musk at his stated price.
Twitter countered Musk’s proposal on Friday with a strategic implementation of a “poison pill.” This maneuver makes it more difficult for him to take control of the company by giving current shareholders a discount to the stock if the Musk deal goes through.
The poison pill might make it harder for Musk’s bid to go through even if he went the tender offer route, Veilikonja said. “As a general matter, it has not been sufficient to get over a poison pill offense to just mount a tender offer,” she explained. The moment he launched a tender offer and acquired more than 50% of the shares, she added, the poison pill would come into effect and re-trigger each time a sale occurred, forcing Musk to raise his bid.
“So essentially, so long as the board could consistently either say, the price is too low or, we want Twitter to remain independent, Elon Musk can’t really just power through this, in particular since he barely has the money to buy Twitter at his current offer price,” she said.
Clearly, Musk isn’t much of a fan of the Twitter leadership. Last week, he proposed turning the company’s headquarters into a homeless shelter, since “no one shows up anyway.” He retaliated to the poison pill decision with a Tweet on Monday threatening to cut board salary members’ salary to zero should he successfully take over the company.
“This is, perhaps, a pastime for Elon Musk,” Velikonja said. “It’s fun. He’s got nothing else to do. He loves Twitter, clearly, and he wishes Twitter were doing something else. So this is perhaps his way of doing so.”
Ihsaan Fanusie is a writer at Yahoo Finance. Follow him on Twitter @IFanusie.
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