But further legal wrangling that results in a continued dive in Twitter’s share price will not benefit Musk – particularly if the court forces him to buy – or Twitter’s management, employees and current shareholders. Both sides should be open to renegotiating the deal to protect the company’s current and future shareholders.
TWITTER DEAL DOES NOT MUTUALLY MAXIMISE SHAREHOLDER VALUE
Acquisitions are generally strategic moves made by a company to bolster its position within an industry. Some buyers want to acquire new capabilities that would otherwise take years to build, others want to enter different markets or introduce new product lines.
Sometimes, if regulators allow, companies also acquire their competitors as a means of consolidating their position in a market.
These deals are typically done with the intent of mutually maximising shareholder value. The acquired company’s shareholders hope to benefit by selling at a premium, while the acquiring company’s shareholders want to own a piece of a more powerful and competitive firm.
This applies even to Musk and his shareholders in this deal who, although a loose collective rather than a company, were set to gain quite a lot when they made the offer to acquire Twitter in April.
As it currently stands, however, the Twitter deal will not mutually maximise shareholder value. In fact, the gain of one set of shareholders could come at a clear loss to the other.
If Twitter can successfully enforce this acquisition through the legal system, Musk and his shareholders would have significantly overpaid for the social media platform based on its value in today’s market.