After Takeover News: Valutico Valuation of Twitter Inc

Weekly Valuation: Twitter Inc – Valutico | 5 May 2022

Elon Musk buys Twitter

Tech entrepreneur Elon Musk is taking over Twitter for around 44 billion dollars. The company announced that it had agreed a deal with Musk.

The US social media platform Twitter has abandoned its resistance to a takeover by tech billionaire Elon Musk. The online service announced that it had reached an agreement with Musk on a deal. According to the deal, Musk will pay $54.20 per Twitter share. The takeover will thus cost him around 44 billion dollars. Now it is up to the shareholders whether they accept the offer.

Board chairman Bret Taylor said the board had concluded, after a « careful and comprehensive » review, that a takeover by Musk was « the best way forward for Twitter’s shareholders ». Twitter CEO Parag Agrawal underlined the company’s relevance: « Twitter has a purpose and relevance that impacts the entire world, » he wrote. He thanked his team, of whom he was very proud and whose work was now more important « than ever before ». 

Musk had explained his desire to buy by saying that he wanted to make Twitter better « than ever before ». To do this, he wanted to offer new functions, make the algorithms of the short message service public in order to « increase trust », « defeat » so-called spambots and « authenticate all people ». 

Twitter had initially rejected takeover

The Wall Street Journal had already reported on Sunday about talks, citing insiders. Twitter was taking a « fresh look » at the offer, it said. The background to this were video conferences between Musk and « selected » shareholders.

Musk had announced at the beginning of April that he had bought up a stake of just over nine per cent in Twitter over a period of weeks. Musk was first supposed to join the Twitter board of directors. However, this would have been linked to the condition that the head of the electric car manufacturer Tesla would not increase his stake in Twitter above 15 per cent. Instead, he turned down the seat on the board and announced his intention to buy the company.

Twitter had initially resisted a takeover. To this end, the board of directors had used a measure under which shareholders could buy more shares at a lower price. He announced his intention to make Twitter a « global platform for free speech » because it is important for civilisation. Musk’s promises of relaxed regulation drew criticism from experts.

Our valuation

In our Valutico analysis we came up with a value range of USD 18 to 24.150 billion, using DCF with a WACC of 11.3 %. As you can see below, we calculated the discount rate using a levered beta of 1.2 and a risk-free rate of 3.0%. Compared with the current market capitalization of around USD 36 billion and Elon Musk’s take-over offering of USD 44 billion, Twitter is trading comparatively expensively and could thus be considered to be overvalued. Also a look into the valuation under this link.