Is Twitter becoming private? What investors need to know

Important points

  • Elon Musk and other investors are interested in privatizing Twitter.
  • Recent news has given Twitter an increase in its share price.
  • Twitter is being marketed with a reasonable rating today.

Twitter (NYSE: TWTR 1.21%) has played the role of media’s best friend recently. Tesla (NASDAQ: TSLA) (NASDAQ: TSLA -4.96%) CEO Elon Musk bought a 9.2% stake in the company in early April, pushing Twitter’s share price up by more than 20% at times . Musk is a longtime critic of the well-known social media company, arguing regularly that the platform does not adequately allow free speech.

Although a share of less than 10% is passive in the eyes of Wall Street, many investors are convinced that Musk plans to transform the way Twitter runs his business. The new news has sparked a lot of rumors about the company’s future plans. Let’s take a look at where Twitter is going and what it might mean for shareholders today.

private conversation

Elon Musk has threatened to open his social media platform in the past, but let’s face it, building a competitive company from scratch would not be easy. It would be wiser to become a major shareholder in a current market leader, and Musk did just that. But of course he had to go one step further: just days after he became the company’s largest shareholder, the prominent CEO offered to buy Twitter in full for $ 43 billion. The offer valued Twitter at $ 54.20 per share, a 54% premium to the company’s market value before Musk’s investment. Last Friday, Twitter launched a “poison pill” against Musk, banning him from increasing his stake in the company over 15% within a year.

Rumors about Musk’s desire to privatize Twitter have caught the attention of several other investors. Thoma Bravo, a leading private equity firm focused on technology, reportedly contacted the social media company to discuss a possible deal following Musk’s offer. Apollo Global Management (NYSE: APP) has also expressed interest in dealing with Musk and other bidders on Twitter. In such a situation, it is not always easy to distinguish true from false messages. While it would be a long process, it is not unreasonable to think that Twitter is a potential candidate for private equity.

How has the stock price developed?

Twitter’s stock price has certainly benefited from the headlines. The company’s shares have risen 29% over the past month, while the S&P 500 has fallen 2% over the same period. Twitter shares reacted particularly well to the company’s decision to use the poison pill, closing the day with 7% on April 18th.

Even after the encouraging growth, the shares of the social media company continue to trade below historical ratings. Twitter is currently valued at a multiple of the selling price of 7.3, compared to its five-year average of 8.4. It will be interesting to see how the stock price goes after the actual noise is extinguished. However, investors should know that Twitter shares are reasonably valued at current price levels.

What should investors do?

Personally, I do not recommend buying Twitter until we learn more about the current situation of the company. Going private would be a long process, but I do not rule it out as a potential opportunity for the social media company. It is clear that many investors have a problem with the current situation of Twitter, so a privatization can help the company in the long run. However, we have to wait and see how the situation develops. Get your popcorn – who knows what’s next?

Article Is Twitter becoming private? What investors need to know first appeared in The Motley Fool Germany.

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This article represents the opinion of the author, who may differ from the “official” recommendation position of a premium Motley Fool advisory service. Challenging an investment thesis – even one of your own – helps us all think critically about investing and make decisions that help us be smarter, happier and richer.

This article was written by Lucas Meindl in English and published on Fool.com on 20/04/2022. It has been translated for our German readers to join the discussion.

Motley Fool owns shares and recommends Tesla and Twitter.

Motley Fool Germany 2022

Photo: Twitter.

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