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Shareholders Are Suffering Most From Elon Musk’s Twitter Feud – Here’s Why Both Sides Must Renegotiate the Deal

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Elon Musk’s recent highly public back and forth with Twitter has given the market whiplash.

Twitter, while initially resisting the tycoon, went on to sign an agreement with him worth $44 billion (roughly Rs. 3,51,550 crore) in April 2022.

The deal placed a 38 percent premium on Twitter’s then-share price. While the market would expect value to be added on a deal like this, more recent events have pushed the premium up even further. This will not benefit shareholders on either side.

Much has changed since Musk’s April offer. Technology stocks have taken a beating due to fears of a recession.

Big tech has lost an average of 26 percent in value, while many smaller tech stocks have lost up to 70 percent.

Tesla shares, which Musk was using to back his Twitter deal, have not been spared either as prices nearly halved between early April and late May, although they have recovered slightly since.

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Share price gains made by Twitter following Musk’s announcement have been lost, while its management says the platform has spent $33 million (roughly Rs. 260 crore) on the deal and has blamed the resulting uncertainty for a recent fall in revenues.

Accounting for the effect of the tech stock drop on Twitter’s pre-deal share price, the premium to be paid by Musk will now be significantly higher than the original 38 percent if the deal goes ahead.

The tycoon and his lawyers have cited reasons unrelated to the change in the deal financials for Musk’s retraction of the offer in July – chiefly the need for more information on spam accounts.

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Twitter is now using legal action to try to force Musk to complete the purchase and a US judge has set a trial date for October. 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.

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Finding 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.

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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.

See also  Twitter Says It Removes 1 Million Bots Each Day Amid Doubts Over Elon Musk’s Deal

The feud has also taken a significant toll on employee morale and retention at Twitter. As such, even if Musk is forced to buy the company, Twitter could be in a worse condition than when he originally bid for it.

It could be argued that this is Musk’s own doing following his decision to walk away from the deal, but most shareholder-focused managers probably would have done the same given the shift in financial incentives.

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On the other hand, if Musk does not buy Twitter, the current shareholders may see market capitalisation (or the value of all shares) slide further.

It is highly unlikely that in the current economic climate there are any other contenders who would be willing to pay Musk’s original price for Twitter.

This is why Twitter management is aggressively pursuing a legal route as the only realistic option to maximise return for its shareholders.

If the deal does go through they will not have to deal with the ramifications of managing a disgruntled workforce, however, unlike Musk.

Protecting shareholders A change of heart about an acquisition is certainly not uncommon. And safeguards are put in place to prevent deals from collapsing.

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In the case of the Twitter deal, there is a $1 billion (roughly Rs. 8,000 crore) breakup fee.

Under normal circumstances, this would have been enough incentive for both parties to complete the deal. But given the financial chasm that exists between April and today, Musk may prefer to pay the breakup fee versus the $44 billion (roughly Rs. 3,51,550 crore) bill for Twitter.

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One way to protect shareholders from the effects of this kind of market volatility is to strike a deal for a mix of stock and cash.

This way the value of the offer is spread between the two elements rather than being solely based on one or the other.

Unfortunately, the Twitter deal is entirely cash based because Musk wanted to take the social media platform private to “protect free speech”.

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Leaving stock on the table could curtail such a plan and so he may be reluctant to renegotiate that element.

As such, buyers and sellers should keep an eye on the market and remain open to a price renegotiation if conditions change as significantly as they have in the past few months.

Since the legal opinion on whether Twitter will win its case is ambiguous, everyone involved may benefit more from collaboration.

Although a clear winner could be declared in court, both sets of shareholder interests are more likely to align in backroom negotiations. 


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US Senate Panel Approves Bill Empowering News Organisations to Negotiate With Facebook, Google for Revenue

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The US Senate Judiciary Committee voted Thursday to approve a bill aimed at allowing news organizations to band together to negotiate with Alphabet’s Google and Meta’s Facebook and win more revenue.

The bill passed the committee by a vote of 15 to 7, according to a congressional aide. It must now go to the Senate for their approval. A similar bill is before the US House of Representatives.

The bill is aimed at giving news and broadcast organisations more clout after years of criticism that big tech companies use their content to attract traffic and ad revenue without fairly compensating the publishers, many of which struggle financially.

The bill, led by Democrat Amy Klobuchar, attracted some Republican support, with Senators John Kennedy and Lindsey Graham sponsoring it. Other Democrats, like Senator Alex Padilla, expressed reservations about it.

The bill hit a speed bump earlier this month when Senator Ted Cruz won backing for a plan to include provisions to address what he considers the platforms stifling conservative voices.

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On Thursday Klobuchar won support for an amendment that specified that prices for use of content was the issue.

“The goal of the bill is to allow local news organisations to get compensation when major titans, monopolies like Facebook and Google, access their content,” she said at a committee session to vote on the bill.

Unlike other bills aimed at reining in big tech, some progressive groups oppose this measure, including Public Knowledge, on the grounds that it favors big broadcasters like News Corp, Sinclair, and Comcast/NBCU.

Also opposing the bill are two technology industry trade groups that Facebook and Google belong to: the Computer & Communications Industry Association and NetChoice.

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© Thomson Reuters 2022

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Buying an affordable 5G smartphone today usually means you will end up paying a “5G tax”. What does that mean for those looking to get access to 5G networks as soon as they launch? Find out on this week’s episode. Orbital is available on Spotify, Gaana, JioSaavn, Google Podcasts, Apple Podcasts, Amazon Music and wherever you get your podcasts.

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WhatsApp Working to Keep Iranians Connected Amid Widespread Internet Shutdown Over Nationwide Protests

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Meta Platforms’ WhatsApp said on Thursday that it was working to keep users in Iran connected after the country restricted access to the app and social media platform Instagram.

WhatsApp “will do anything” within its technical capacity to keep the service accessible and that it was not blocking Iranian phone numbers, the messaging service said in a tweet.

We exist to connect the world privately. We stand with the rights of people to access private messaging. We are not blocking Iranian numbers. We are working to keep our Iranian friends connected and will do anything within our technical capacity to keep our service up and running

— WhatsApp (@WhatsApp) September 22, 2022

Iran on Wednesday restricted access to Instagram and WhatsApp, two of the last remaining social networks in the country, amid protests over the death of a woman in police custody, according to residents and internet watchdog NetBlocks.

Last week’s death of 22-year-old Mahsa Amini, who was arrested by morality police in Tehran for “unsuitable attire”, has unleashed anger over issues including freedom in the Islamic Republic and an economy reeling from sanctions.

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Protesters in Tehran and other Iranian cities torched police stations and vehicles earlier on Thursday as public outrage over the death showed no signs of abating, with reports of security forces coming under attack.

On Thursday, the Associated Press reported that the country had imposed a near-total Internet blackout on Wednesday on the fifth day of protests against the government over Amini’s death, after she was held by the country’s morality police for allegedly violating its strictly-enforced dress code.

Previously, a government official had hinted that security concerns might prompt measures to restrict internet access. As previously mentioned, Instagram and WhatsApp were the last major social media networks operating in Iran.

The country currently blocks Facebook, Telegram, Twitter, YouTube, Instagram, and WhatsApp. However, top Iranian officials have access to public accounts on these platforms, while Iranians are able to access these services using virtual private networks and proxies, according to the report.

© Thomson Reuters 2022

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Buying an affordable 5G smartphone today usually means you will end up paying a “5G tax”. What does that mean for those looking to get access to 5G networks as soon as they launch? Find out on this week’s episode. Orbital is available on Spotify, Gaana, JioSaavn, Google Podcasts, Apple Podcasts, Amazon Music and wherever you get your podcasts.

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Facebook Whistleblower Frances Haugen Launches ‘Beyond the Screen’ Organisation to Tackle Social Media Harms

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Whistleblower Frances Haugen – a former Facebook engineer who leaked documents suggesting the firm put profits before safety – on Thursday launched an organisation devoted to fighting harm caused by social media.

The new Beyond the Screen nonprofit said that its first project will be to document ways big tech is failing in its “legal and ethical obligations to society” and help come up with ways to solve those problems.

“We can have social media that brings out the best in us, and that’s what Beyond the Screen is working toward,” Haugen said in a statement.

“Beyond the Screen will focus on tangible solutions to help users gain control of our social media experience.”

Haugen last year leaked reams of internal studies showing executives knew of their site’s potential for harm, prompting a renewed US push for regulation.

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Haugen contended the tech titan, which has since rebranded itself as Meta, put profits over safety. Meta has fought back against the accusation.

Haugen’s nonprofit said it will collaborate with groups including Common Sense Media and Project Liberty that share a “commitment to supporting healthier social media.”

Beyond the Screen’s first project “represents a bold, inclusive, and much-needed effort to drive a seismic shift in how social media operates,” Project Liberty founder Frank McCourt said, according to Beyond the Screen’s statement.

“We look forward to working with Frances and her team to launch this new initiative and advance our shared goal of enabling healthier digital communities and stopping harmful business models.”

Since leaving Facebook in 2021, Haugen has advocated in the US and other countries for legislation meant to make social media platforms safer, particularly for young people.

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Buying an affordable 5G smartphone today usually means you will end up paying a “5G tax”. What does that mean for those looking to get access to 5G networks as soon as they launch? Find out on this week’s episode. Orbital is available on Spotify, Gaana, JioSaavn, Google Podcasts, Apple Podcasts, Amazon Music and wherever you get your podcasts.

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