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Merger Arbitrage
“Tourist” is an apt accusation that can be hurled at investing generalists when we stray into specialized sectors such as oil & gas (me, now) or biotech (me, not now). Well, know who else can be pretty awful? Merger arb tourists. They don’t seem to have great reading comprehension. Or they don’t even try to read merger agreements. But in either event, the merger analysis around Twitter has been particularly casual and amateurish among people speaking on TV and getting quoted about this one in the newspapers. Therein lies a potential opportunity.
Who?
It’s Twitter. Twitter (NYSE:TWTR) is a social media platform. Duh. I think of Facebook (META) as people who know each other in real life whether we care about the same stuff, and Twitter as people who care about the same stuff whether or not we know each other in real life.
What?
Elon Musk signed a definitive merger agreement to buy Twitter for $54.20 in cash. The deal secured US antitrust approval. It needs a UK clearance and may need CFIUS. The target’s shareholders also need to vote on it.
When?
The deal will probably close later this year if they agree to close on current terms or amicably re-cut it. It will probably close by next April if it gets litigious.
Where?
They operate internationally where permitted.
Why?
Almost immediately following the deal’s signing, Elon started tweeting crazy things, letting the seller and the market know that he doesn’t want to close the deal on current terms. But that is why people sign contracts instead of conducting multi-billion dollar deals by tweets. And it is why buyers agree to prices that make economic sense instead of prices that are marijuana jokes.
|
Target |
Ticker |
Parity |
Spread |
IRR |
|
|
(TWTR) |
$54.20 |
$16.75 |
48% |
Conclusion
It is never entirely clear when Elon is joking. His serious endeavors are often colored with levity, and his jokes are often delivered dry. It could be that this whole deal is a joke to him. But ya know who’s not joking? Delaware chancellors. They’re as serious as it gets. Whether or not Elon takes the agreement that he signed seriously, they will. If and when it gets to them, they are exceedingly likely to enforce it and, unless something changes, that will probably mean that Elon will have to buy it.
Caveat
The weakest link in this deal is Tesla (TSLA). If Tesla really properly implodes, then funding will be a lot less secured. One might consider shorting or buying puts on TSLA to hedge TWTR long positions.
TL;DR
Buy TWTR.
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