The mark of a true genius is one who can repeatedly see things mere mortals can’t. Elon Musk unquestionable satisfies the genius criteria. He made electric vehicles financially viable when people who make cars for a living said it couldn’t be done. His SpaceX venture is the stuff of science fiction. Musk has some other ventures I’m not smart enough to fully understand or evaluate.
Musk’s antics leading up to his offer to buy Twitter for more than $43 billion reveals that he’s also a visionary when it comes to the U.S. stock market. Musk has made clear that he regards SEC rules and regulations as a joke, and that stock valuations are artificial and easily manipulated. So far, Musk is laughing all the way to the bank, but here’s why investors whose financial futures are tied to the stock market should be concerned.
Musk today gave Twitter’s board a take-it-or-leave it cash offer of $54.20 a share. He’s offered no public explanation as to how he derived that valuation, leading to speculation the price is a play on “420,” teenage slang for marijuana. Even if the speculation is wrong, the fact the Wall Street Journal deems it credible enough to report underscores the widespread belief that Musk could actually be that childish.
Typically, when a serious buyer makes a hostile bid for a public company, they have many pieces in place to hit the ground running, like how they are going to finance the offer and a coherent explanation as to why investors would be wise to accept it. A serious buyer invariably lines up some big-name investment banking and law firms, and sometimes even has a CEO waiting in the wings.
Musk’s offer is short on details, except to say Morgan Stanley has been retained. Morgan Stanley should be ashamed if it fed Musk this takeover message point in his securities filing: “Twitter has extraordinary potential. I will unlock it.”
A takeover based on nothing but the argued genius of the acquirer.
Musk said his funding hinges on “completion of anticipated financing,” which means that he doesn’t yet have it. From what I’ve read, Musk lives on borrowing against his Tesla holdings, so either he must sell some Tesla stock or line up a syndicate of banks that will allow him to borrow against the value of his Tesla shares. (Making a $43 billion loan secured by a single stock mightn’t seem prudent, but U.S. bankers aren’t the brightest bulbs.) If Musk sells some Tesla stock, that could drive down the value, harming the company’s investors and reducing his interest in the company.
Musk claims to be a “free speech absolutist,” a disingenuous assertion the media shamefully allows him to get away with. Musk is in bed with China, where Tesla enjoys special privileges in exchange for helping the Communist country hone its electric vehicle expertise and gain superiority over the U.S. and the rest of the world.
Musk has previously praised China for becoming a global leader in digitalization. PEN International, whose mission is to promote free speech around the world, says China represents “the world’s most advanced and expansive system of digital censorship.”
Bloomberg reported last December that Tesla asked its Chinese government handlers to censor the company’s online critics. Musk blocked Robert Reich two years ago after the former Labor Secretary criticized Musk’s treatment of Tesla workers, who we’ve since learned were subjected to vile racism. Musk also blocked the account of a teenager who was tracking his jet.
Musk says he wants to make Twitter “the online home for free speech,” yet he has advocated that Twitter eschew advertising and adopt a subscription model, which seemingly indicates one would have to pay in order to enjoy their “free speech.” I also wonder how a Musk-owned Twitter would handle criticisms of China and its leader for life, Xi Jinping. I recall reading that one can be arrested in China for public comments made outside the country, and it seems possible that the Xi government could hold Musk ultimately responsible for criticisms on Twitter. I wouldn’t want to be Musk if that were to happen.
Then there’s the issue of Tesla’s Twitter bots, which Musk has yet to comment on. According to research by David Kirsch, a professor at the University of Maryland’s business school, there’s a correlation between tweets coming from automated Tesla accounts and the rise in the EV maker’s stock price. Details of Kirsch’s findings were reported in this Los Angeles Times story, which unfortunately doesn’t make clear whether Tesla is the creator of the bots promoting the company.
Admittedly, I’m getting bogged down in details, as is my habit. Spending much energy on Musk’s Twitter acquisition makes as much sense as speculating on the price of tea in China, which Musk likely has the contacts to find out. My sense is the proposed takeover is all a game to Musk, a chance to gain attention to feed his supersized ego. What’s lost in virtually all the media coverage are the market weaknesses Musk has exposed.
In acquiring his 9.2 percent interest in Twitter, Musk flouted a market rule requiring investors to disclose when they acquire a 5 percent interest in a company. That allowed him to avoid having to pay a significant premium on the additional four percent he would have been forced to pay because of the invariable runup in the company’s stock price after it became public that Musk was building a position in the company.
I’d liken Musk’s flouting of the 5 percent rule to driving through a neighborhood with a posted 25 mph speed limit and driving past a police car at 100 mph. The SEC might impose a wrist slap on Musk, but he’s repeatedly made clear the agency is toothless taking on a deep-pocketed investor scofflaw.
What’s also overlooked is that Musk has already made back much of his investment, with little effort other than some mindless tweets, several of which he has since deleted. It’s an example of how easy it is to manipulate stock price valuations because they are no longer determined by business fundamentals but rather hype and speculation. It’s all financial sand that can either be piled higher or blown away, depending on which way the investor wind is blowing.
I predict that Musk will soon tire of his Twitter escapade, dump his shares, and pocket millions of dollars. As brilliant as Musk is, with Twitter he’s merely leveraged the decades-old wisdom of the writer H.L. Mencken: No one has ever lost money by underestimating the intelligence of the American public.