Speaking Freely About Elon Musk and Twitter

Everybody hates Elon... 'This is not a way to make money'... The $54.20 tongue-in-cheek factor... The SEC watch list... A scarcity of buyers... Boot and Reich channel Orwell... Content moderation of conservatives... He's no sucker... Speaking freely about Elon Musk and Twitter...

It's hard not to root for the underdog...

And believe it or not, billionaire Tesla (TSLA) founder and CEO Elon Musk is the underdog.

On Thursday, April 14, before the stock market opened, Musk announced his offer to buy all shares of Twitter (TWTR) he doesn't already own for $54.20 each. The offer values the company at $43 billion...

Musk said in a TED talk on Thursday that he'd like to have as many shareholders in the transaction as possible... That implies he doesn't want to be on the hook for the $39 billion it would take to acquire the 90.8% of the company he doesn't already own.

Musk announced in a U.S. Securities and Exchange Commission ("SEC") filing on April 4 that he owns 73.1 million shares, or 9.2% of Twitter stock.

Mostly due to his 16.7% stake in Tesla, Musk is the richest man in the world... worth $251 billion, according to Bloomberg. If he can't get other shareholders to come along and help him take it private, he can certainly do it by himself.

In today's Digest, I (Dan Ferris) will look at Musk's potential acquisition of Twitter and discuss what the market thinks, what the company board must consider, and what it all means for free speech in the U.S. today...

So... how can the world's richest man be seen as the underdog?

Just about everybody seems to hate him for making the offer, starting with the ultimate judge... the stock market.

So let's see what the market has said...

In most cases, when an offer is made to take a public company private, the stock immediately begins trading within about 1% to 3% of the offer price...

The difference between the market price and the offer price is called the "arb spread," meaning someone (an arbitrageur) who bought the shares at that market price could get that return by selling at the offer price.

If the stock is $10 and the offer is $11, the arb spread is 10%... A narrow spread indicates the market is confident that the deal will happen, either at the current takeover offer or some higher price. A wide spread indicates a lack of confidence.

Musk's offer is $54.20 per share. Twitter shares opened at $48.37 on Thursday. That's a 12% spread, which is very wide...

The stock closed down for the day at $45.08, a 20% spread. In other words, the market doesn't think the deal will happen.

Musk probably caused the spread to widen when on Thursday he said, "I'm not sure that I will be able to acquire it."

He even went on to add, "This is not a way to make money... I don't care about the economics [of the business] at all."

Profit-minded investors who might have otherwise liked to partner up with him to acquire Twitter might not like that outlook on the deal. A board trying to at least give the appearance of fulfilling its fiduciary responsibility to shareholders might repeat those words often and loudly as a reason to reject his offer.

Then there's the tongue-in-cheek factor...

At $54.20, the offer echoes the one Musk never quite made for Tesla at $420 per share. He tweeted on August 7, 2018 that he was taking Tesla private for $420 per share... The number "420" is a marijuana reference. Musk famously smoked pot during his interview on the "Joe Rogan Experience" podcast.

To make matters worse for anyone trying to take him seriously, in that August 2018 tweet, Musk included the phrase "funding secured"...

The SEC had a different opinion and charged him with securities fraud. Calling the SEC "bastards," Musk says he was forced to settle with them, which resulted in him and Tesla each paying $20 million in fines.

Twitter's board is not thrilled with the offer...

The board of directors enacted a shareholder-rights plan on Friday, usually referred to as a "poison pill." It's a common practice companies follow to prevent anyone from accumulating shares to force the company into a sale.

Twitter's poison pill is good for one year and makes it extremely difficult if not impossible for anyone to buy 15% or more of the company's common stock... It doesn't stop the company from being acquired. It only stops someone like Musk from buying a majority of the stock in the open market.

The board should be seeking alternative offers, either for the entire company or for Musk's shares, but finding an alternative offer for the whole company could be difficult...

It'll need to find a buyer with a decent chance of passing an antitrust review. That eliminates almost every company that is both big enough and that also might want to own Twitter.

If Twitter's board can find a "white knight" investor to buy Musk's shares for $54.20, the episode will end, and the share price might just stay right up around where it is today.

Musk's SEC filing indicates that if his offer isn't accepted, "[he] would need to reconsider [his] position as a shareholder"... In other words, he'll sell his current stake if they don't let him buy the company.

That would certainly cause Twitter's share price to plummet. Remember, Twitter's share price rose 27% on April 4, the day Musk made his 9.2% stake public... The disappearance of the reason the stock went up would likely make it drop back down.

That could trigger lawsuits against the board of directors for failing to serve the best interest of shareholders... Remember, the directors own shares, too. They want to sell their own stakes for as much as possible, just like all the other shareholders they serve.

If the board doesn't sell to Musk, it can't afford to simply reject his offer without having a backup plan. Musk has them where he wants them, and they must act.

He knows this and may well have made his offer to exit his 9.2% stake quickly with a big profit. As he pointed out in the filing, $54.20 is 38% above where the stock was trading just 13 days before. Not a bad return for less than two weeks!

Antitrust regulators shouldn't have a problem approving the deal...

Musk doesn't own any other media companies, so there's no danger that he'll exercise the (mostly fabled) "monopoly power" that governments claim to be so paranoid about...

There's no way, for example, that Meta Platforms (FB) would ever be allowed to acquire Twitter because it already owns two huge social media properties, Facebook and Instagram... Alphabet (GOOGL) owns YouTube... Microsoft (MSFT) owns LinkedIn... Amazon (AMZN) doesn't own a media company, but its founder Jeff Bezos owns the Washington Post...

Foreign companies would never be allowed to buy it. And as we've already noted, most other big companies that might want to own Twitter will likely run up against antitrust issues.

I'm not saying the government is on Musk's side. He has had his run-ins with the SEC, and it looks like he might be on the verge of another one...

Fox Business commentator Charles Gasparino tweeted on Thursday that the U.S. Department of Justice and the SEC had launched a "'joint investigation' into a myriad of Musk regulatory issues primarily involving Tesla."

I don't have any other details, but it wouldn't be a surprise... The 420 debacle alone likely got Musk a permanent place on the SEC's watch list.

Besides the stock market, Twitter's board, and government regulatory and enforcement agencies, one more group is directly impacted by the deal ‒ or at least thinks it is... Twitter employees.

Now Musk's stated reason for wanting to buy Twitter comes into play...

In short, Musk likes freedom of speech, and too many people at Twitter don't. In Thursday's filing, Musk wrote...

I invested 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...

Twitter has extraordinary potential. I will unlock it.

Musk sees Twitter as a free-speech platform. But almost nobody else in the media today really cares for freedom of speech very much. Announcement of the offer brought professional outragers out of the woodwork...

News outlet Axios said that Musk "is increasingly behaving like a movie supervillain, commanding seemingly unlimited resources with which to finance his mischief-making"...

Washington Post opinion columnist Max Boot tweeted...

I am frightened by the impact on society and politics if Elon Musk acquires Twitter. He seems to believe that on social media anything goes. For democracy to survive, we need more content moderation, not less.

That last sentence sounds like "freedom is slavery," which you may remember from George Orwell's dystopian novel 1984. Former Labor Secretary Robert Reich expressed the same sentiment in an opinion piece published Tuesday...

More than one Twitter poster alleged Musk would turn it into a far-right extremist site. One said it would be "the end of the world."

'Unhinged' doesn't begin to describe this nonsense...

The Washington Post had previously commented on the prospect of Musk being appointed to Twitter's board, without irony or sarcasm, expressing the need for "regulation of social media platforms to prevent rich people from controlling our channels of communication." Once again, we remind you that billionaire Amazon founder Jeff Bezos owns the Washington Post.

Twitter employees hate Musk, too. They've explicitly stated they don't like freedom of speech. Just hours after Musk announced his offer, one employee told Time magazine...

[T]he idea of bringing more free speech to the platform exposes [Musk's] naivete with respect to the nuts and bolts of content moderation.

"Content moderation" refers to the rules Twitter uses to squelch political views it doesn't like. Mind you, Twitter is a private enterprise... I would never suggest government regulators get involved.

The point is that plenty of people absolutely hate the idea of freedom of speech, and they're not even trying very hard to hide it. And they're the same people in charge of the social media outlets created to let individuals' voices be heard.

But Musk does not seem to think people should be able to say any crazy nonsense they want... He has made it clear he thinks Twitter should adopt rules that reflect existing speech laws, and that, when speech enters a gray area, Twitter should err on the side of allowing it.

In other words, allow genuine freedom of speech, except that, of course, just as under the law, you're not allowed to do things like yell "fire" in a crowded theater, incite a riot, or threaten people with bodily harm...

If somebody tweets that they'd like to kill someone, of course Twitter should at least suspend the account while they figure out if it's a genuine murder plot or just a loose-lipped loser.

In the end, speech is just that: speech...

Sticks and stones may break my bones, but words – or names – can never hurt me. It's a typical facet of modernity to make a needlessly complex hash of a simple issue that was solved long ago...

As I've said before, the first civilized human was the one who called his neighbor a jerk instead of hitting him over the head with a rock.

It's telling that an investor who wants to allow the free expression of political views is so hated by almost everybody with any kind of stake in the matter... many of whom make their living by publishing political and other opinions.

The irony is too thick!

Musk simply wants to fix Twitter's political-bias problem... Nothing he has said could even remotely be interpreted as any type of right-wing extremism.

Calling him a Nazi, as some have on Twitter, because he wants to allow everybody's voice to be heard, seems more extreme than anything Musk has said he'd like to do.

I think the odds favor Twitter being acquired soon...

I could be wrong, but I just don't see how Twitter's board gets out of this without doing something that prevents the stock from tanking if it rejects Musk's offer.

At the very least, somebody has to take him out for $54.20 per share... If that's all that happens, I'd probably sell a speculative stake on that news.

Otherwise, you should be looking at an even bigger gain in the event of a competing bid. This isn't an official recommendation, but if it's wrong, I'll certainly own up to it.

I find the dynamics of the situation very interesting, partly because I make a living freely expressing my views.

And in my spare time, I take to Twitter with views on finance and other topics. In my Digest essays, Stansberry gives me mostly free rein to say what I want, what I believe, and what I think would most benefit you to hear...

I can't say the same for Twitter, which once suspended me for suggesting a politician should be tarred and feathered. I understand that's technically a threat of bodily harm, but get real...

I might say things you don't like, but as Musk said at the TED talk, that is exactly how you recognize true freedom of speech when you hear it.

Twitter has given voice to millions of people all around the world... But it has gone too far in suppressing and censoring speech simply because its employees disagree with it.

The more closely free-speech principles are followed, the more the platform will appeal to a wider audience. Twitter likes to cite studies that conveniently suggest a free flow of ideas is unhealthy.

But tell me this...

The New York Times itself – the "paper of record" and one of the most progressive voices on the planet – verified that the much-discussed laptop of President Joe Biden's son Hunter Biden was legit and not Russian disinformation, as had been alleged by virtually every progressive media outlet.

Should all the people who said it was Russian disinformation be allowed to determine what you can and can't say on social media?

Because that's who is running Twitter and most other media companies right now...

The surprising outcome that nobody seems to be expecting here is that Elon Musk does acquire Twitter, does make changes... and does improve it for everyone.

One last observation about Musk's Twitter offer...

Musk is no sucker.

He knows what he is doing... He intended the $54.20 offer as a joke and knew it would be laughed at. He knew he'd send Twitter's board into a mild state of panic.

He knows free speech is under attack and that myriad voices would express insane views about his desire to promote it. He also knows it's an iron law of nature that the wealthy are routinely villainized...

He knows if he buys Twitter, he'll be vigorously criticized by everyone with a keyboard and a microphone... and by millions of people with Twitter accounts.

And he did it anyway.

I'm no Musk fanboy... I totally disagree with his belief that there's an urgent need for cars to go electric.

Gasoline is a miracle that has raised the living standards of more people than almost any other single product. If you can't acknowledge that, you shouldn't even be in the conversation.

I also believe Tesla is vastly overvalued and might not even exist in 10 years... I don't consider that the least bit controversial of an opinion.

But it's foolish not to acknowledge Musk's achievements. PayPal (PYPL), SpaceX, Tesla... no matter what mistakes he has made... even if he gets prosecuted again for securities fraud... it doesn't mean he hasn't done great things, because he has.

I'll go even further.

Calling him naïve is one of the dumbest things I heard in the wake of his offer.

At the TED talk interview, Musk was asked if there was a "Plan B" if his offer was rejected.

"There is," he replied.

He would not elaborate...

Underestimating Elon Musk has been a mistake so far, leading me to believe it will continue to be one.

New 52-week highs (as of 4/14/22): Bunge (BG), Black Stone Minerals (BSM), Dollar General (DG), Enterprise Products Partners (EPD), Franco-Nevada (FNV), General Mills (GIS), Huntington Ingalls Industries (HII), Coca-Cola (KO), Karora Resources (KRR.TO), Leidos (LDOS), Altria (MO), Mosaic (MOS), Nucor (NUE), VanEck Oil Services Fund (OIH), Raytheon Technologies (RTX), Rayonier (RYN), Seabridge Gold (SA), Shell (SHEL), Sprott (SII), Telekomunikasi Indonesia (TLK), Westlake Chemical Partners (WLKP), Wheaton Precious Metals (WPM), and SPDR S&P Oil & Gas Exploration & Production Fund (XOP).

In today's mailbag, more of your comments and observations about inflation, including 4X price increases on at least one farm... What do you think? Keep your notes coming... E-mail us at feedback@stansberryresearch.com.

"We have a crop farm in south-central Wisconsin. Roundup herbicide has gone from $13 per gallon in the fall of 2021 to $56 per gallon currently – if you can get it – a four-fold increase. Urea, our nitrogen source of choice, has risen from the low $300s to $880 per ton – easily 2.5 times last year's price.

"Fortunately, the prices for corn, soybeans, and wheat have risen, too, but that only means that the increases will come out of the consumer's hide eventually.

"I'm 70 and trying to convince my two brothers that it is time to take risk off the table – let someone else rent our land and let them deal with the risks of input supply and volatility in commodity prices." – Paid-up subscriber Daniel S.

"We own and operate an agricultural animal bedding business. Our products are generally a commodity, very sensitive to price and not absolutely necessary. Our greatest concern is having to change prices almost weekly because of plastic increases, fuel increases, and costs to keep experienced labor.

"We actually recycle wood waste that may otherwise make its way to the landfill. You realize that when your supply is something you cannot easily replace when your supplier shuts down for any reason, you begin to wonder is it worthwhile to continue in this business.

"This rapid inflation we are experiencing just adds more stress to an already difficult business environment. Thank God for those few customers who appreciate our efforts to try to provide a good product at a fair price." – Paid-up subscriber Michael N.

"Went to buy some fertilizer and pre-emergent for my yard. Last year paid $43.95 for 40 lbs. This year $69.95 for the same 40 lbs. Cost of everything for my yard and garden is up 15% to 20%. Seeds, plants, etc." – Stansberry Alliance member Phill N.

"Diesel fuel is the lifeblood for moving goods and heavy machinery throughout the globe. Without diesel, farming is affected. Without diesel, transporting material through the supply chain is hampered. Without diesel, the military machinery is dampened. Europe is totally dependent on diesel... nothing moves in manufacturing without access to the fuel. China has stopped diesel exports to protect national security. And top that off (pun intended) with diesel fuel stocks at their lowest level in decades.

"Inflation... when the supply line is choked off by lack of transport/lack of manufacturing/lack of farming... how many products do you think you can obtain at any price? Of course, that only applies to the products we all deem necessary for daily living. It's getting very late to buy essentials to maintain a comfortable standard of living... time to create a great circle of loving families, and a group of like-minded friends. We'll see this through when we come to our senses." – Paid-up subscriber Rob C.

"The Fed got us into this, buying assets, junk bonds, etc. Now the Fed must destroy the demand they created by flooding the markets with stimulus, which will result in recession, worst-case depression.

"Never mind the Fed governors' jaw boning. Watch what they do instead and prepare. All charts look bad.

"Consequences: Bad for our Petrol-dollar-reserve-currency, which is going downhill fast. A recession at minimum. Depression maybe." – Paid-up subscriber Bernie B.

"Inflation can be summarized in a simple Fishers equation: M2 [money supply] times velocity of money in circulation divided by GDP. M2 has almost doubled in two years, GDP growth is nothing to write home about. So my view is that inflation is a wild bronco to tame.

"My country, Argentina, has a lag of three months from the increase in M2 to pass to the prices, due to our almost century-long inflation memory. In the U.S. people are not used to it, so it takes longer for inflation to show up.

"If the Fed has almost tripled its balance sheet in two years, inflation will remain for a while despite of the mild attack with interest raising. Remember Tall Paul [Volcker, he was 6-foot-7]." – Paid-up subscriber José F.

Good investing,

Dan Ferris
Eagle Point, Oregon
April 18, 2022