Elon Musks pursuit of Twitter has many aspects ACCA AFM students should be very familiar with.
First of all is the $43bn offer for a company that at best makes a turnover of just over 1/7 of that number. Also, prospects of a profit are slim to nil.
So, how did Mr Musk get to that value ? Yes, he believes that Twitter is badly run (his opinion not mine). But don’t take his refusal to join the board as a paradox. If he did that now, he would have limitations on his share ownership.
Clearly, Mr Musk is relying upon his forecasts of future free cash flows – the classic method tested in ACCA AFM.
Then, we look at his funding. A mixture of his own assets plus funds raised by Morgan Stanley and Co. Looks to me like a mixture equity & debt funding. I wonder what the new WACC of Twitter will look like.
Finally, the defence strategy put forward by the Twitter board against this hostile take over. They plan to use “limited-duration shareholder rights plan”. Clearly a poison pill defence strategy.