THE SALE OF TWITTER

 The offer was too tempting to ignore, writes Sonny Aragba-Akpore

  Twitter was already swimming against financial tides before the proposal to buy by Elon Musk came. Its fortunes were dwindling and it was going to be a question of time before they run into troubled financial waters.  And so when Musk came, it was too tempting and the board didn’t hesitate before closing the deal.

   To understand the speed with which Twitter’s board accepted Musk’s $44 billion buyout offer, Wall Street already held grim views over Twitter’s ability to reach lofty financial goals announced after demands by activist investor Elliott Management in 2020.

When the company reported its quarterly financial results last week, analysts were right. Growth dropped behind what they needed to reach aggressive 2023 growth targets that Jack Dorsey, the co-founder and then-chief executive of Twitter promised Wall Street. Data from Refinitiv say Twitter is expected to miss this target and remains off track for the remainder of this year.

   Two weeks ahead of the deal announcement with Musk, Michael Nathanson, an influential tech and media analyst at Moffett Nathanson, advised shareholders to “take the money…and run.”

Twitter missed analysts’ revenue estimates, reporting 1.2 billion versus the 1.23 billion being expected.  But it beats estimates for earnings per share, at four cents, adjusted compared to three cents expected.

 The company said the 229 million monetizable daily active users [ mDAUs ] it reported in the quarter represents a 15.9% increase from the same period last year. In the U.S. mDAUs were up 6.4% from the prior year’s quarter, at 39.6 million. International mDAUs came in at 189.4 million, up 18.1% from the year before.

Twitter’s board reached the conclusion to sell because directors had no confidence in new CEO Parag Agrawal’s ability to deliver a higher return than what Musk offered, clearing the way for the decision to sell just four days after the Tesla CEO detailed his financing.

Handing off the CEO role to an untested leader, Agrawal, five months ago created additional risks for Twitter, said Ryan Jacob, chief investment officer at Jacob Asset Management, which holds $7.7 million worth of shares in Twitter. “They have aggressive targets out there, and there’s a lot of skepticism they can hit those numbers,” Jacob said. “The CEO doesn’t have a record.”

Eight current and former Twitter staffers, including both executives and employees, described to Reuters “long-standing issues of internal dysfunction, indecision and a lack of accountability, which, in the view of one current employee, were exacerbated by the pressure to deliver promised results.”

Dorsey, who had declined to take a salary from the company and instead chose to take a $1.40 yearly paycheck, owns 2.4% of the company, with just over 18 million shares. Under Musk’s offer to buy each Twitter share for $54.20, Dorsey would receive a $978 million in cash, according to agency reports.

Twitter’s current CEO Agrawal would also be set for a significant compensation package. And  If Musk were to bring in new management, Agrawal would receive $38.7 million due to a clause in his contract, according to the company . Agrawal’s total compensation for 2021 was $30.4 million, largely in stock awards.

Twitter’s other executives like the Chief Financial Officer, Ned Segal; Chief Legal Officer, Vijaya Gadde, and Chief Customer Officer, Sarah Personnette would receive various juicy sums if Musk brings in a new management.

In expressing his approval-of the acquisition, in a tweet, Dorsey had said, “Everything In Its Right Place, in principle, I don’t believe anyone should own or run Twitter. It wants to be a public good at a protocol level, not a company. Solving for the problem of it being a company, however, Elon is the singular solution I trust. I trust his mission to extend the light of consciousness.”

He went on to say that Musk’s goal of creating a platform that is “maximally trusted and broadly inclusive” is the right one and that this goal aligns with Agrawal’s vision for the platform as well. He concluded by saying that “this is the right path” and that he is “happy Twitter will continue to serve the public conversation.”

As with many things surrounding the acquisition, it’s unknown if Agrawal will remain in his position as CEO. However, Musk had stated in SEC filings that he did not have confidence in Twitter’s current management, which indicates that Agrawal and other Twitter executives may not remain in their positions once Musk takes control.

Twitter says the transaction, which was unanimously approved by the board, will likely close this year following shareholder and regulatory approval and “the satisfaction of other customary closing conditions.”

Musk will pay $54.20 a share for Twitter in cash, representing a 38% premium to the stock’s closing price on April 1, the day before Musk disclosed a 9% stake in the social media company.

“The Twitter Board conducted a thoughtful and comprehensive process to assess Elon’s proposal with a deliberate focus on value, certainty, and financing,” said Bret Taylor, Twitter’s independent board chair. “The proposed transaction will deliver a substantial cash premium, and we believe it is the best path forward for Twitter’s stockholders.”

Musk has secured $25.5 billion of fully committed debt and margin loan financing and is providing approximately $21 billion equity commitment, Twitter said.

“Free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated,” Musk said. “I also want to make Twitter

better than ever by enhancing the product with new features, making the algorithms open source to increase trust, defeating the spam bots, and authenticating all humans.”

 Musk stated, “I am investing in Twitter as I believe in its potential to be the platform for free speech around the globe, and I believe free speech is a societal imperative for a functioning democracy.

But analysts think Musk’s ownership of Twitter and his stated reasons for buying the company raise important issues. Those issues stem from the nature of the social media platform and what sets it apart from others.

  Twitter occupies a unique niche. Its short chunks of text and threading foster real-time conversations among thousands of people, which makes it popular with celebrities, media personalities and politicians alike.

Social media analysts talk about the half-life of content on a platform, meaning the time it takes for a piece of content to reach 50% of its total lifetime engagement, usually measured in number of views or popularity-based metrics. The average half-life of a tweet is about 20 minutes, compared to five hours for Facebook posts, 20 hours for Instagram posts, 24 hours for LinkedIn posts and 20 days for YouTube videos. The much shorter half-life illustrates the central role Twitter has come to occupy in driving real-time conversations as events unfold.

Aragba-Akpore is a member of THISDAY Editorial Board