Last month Elon Musk said he was putting his $44bn bid for Twitter “on hold”. Now the Tesla billionaire is switching from neutral to reverse gear, or at least threatening to do so. A legal letter to Twitter’s board says he reserves his right “to terminate the merger agreement”.
This development will surprise precisely nobody because Musk has been bleating about Twitter’s bots – meaning spam and fake accounts – almost from the day he signed the formal takeover terms. The point is that the quarrel is manufactured. If Musk was truly worried about how the company measures the number of bots on its site, the opportunity to demand detailed information was before he signed on the line in April.
That, at least, is how the outside world understands the takeover game. In claiming “a clear material breach” by Twitter of its obligations, Musk’s lawyers could probably spin out this saga for years. More likely, the tactic seems designed to weary Twitter’s board to a point at which it either agrees to cut the takeover price or is happy to call the whole thing off. At $39, down 3% in early trading on Monday, Twitter’s share price says the chance of this transaction happening at the agreed $54.20 is small and getting smaller.
Take your pick from any number of explanations for Musk’s apparent change of heart. The most likely is the slide in tech valuations that has made $54.20 look far too generous. Or perhaps he just enjoys the mischief. Whatever the truth, Musk comes across as a monumental time-waster.
One hopes Twitter’s board does what it has said it will do and tries to hold Musk to the agreed terms. It’s not a risk-free option, however. A court battle with the untameable and unpredictable Musk would be a serious distraction for years, with the bot issue in the headlines to scare advertisers. Assuming Musk could be relied upon to actually pay the $1bn break-fee, that option might soon look attractive for a beleaguered Twitter board.
FirstGroup should see what it can do without I Squared offer
FirstGroup has faced its share of shareholder rebellions over the years, so it’s a slight surprise to hear the sound of loyalty in the ranks as a would-be bidder turns up at the bus and rail group. But Schroders, the largest investor with a 16% stake, is right: the tentative approach from I Squared Capital, a US private equity fund, looks miserable.
The problem, as the Schroders fund manager Andy Simpson argued, is the level of the bid and its structure. The “up to” clause in the headline approach at 163.6p-a-share, or £1.2bn, is critical. Only 118p would be in hard cash, with the rest dependent on the eventual payouts from FirstGroup’s two disposals in the US last year, including the Greyhound coach operation. If the appeal of cash takeovers is certainty for selling shareholders, a proposal involving “contingent rights” doesn’t qualify.
A clean £1.2bn offer, with the conditional bits made unconditional, would be better, but even then there’s a fair argument that investors would be better off seeing what FirstGroup can do in slimmed-down form as a pure UK bus and rail operator.
Basic elements of a more reliable future are in place. First Bus is the second largest regional bus operator in the UK, and the rail side includes Avanti on the west coast, Great Western Railway, South Western Railway and TransPennine Express. With the rotten rail franchising system being dismantled, operators will be working for management fees in future, as opposed to taking speculative bets on revenue projections. From the perspective of a long-term owner, the model looks more stable.
Risks of strikes and lack of clarity around government funding are obvious uncertainties, but surrendering at this point to a US fund with next to zero UK expertise would be desperately unambitious. FirstGroup’s board is still pondering its response to I Squared. It should take its lead from its largest shareholder: tell ’em to hop off.
Complaints about Sunak’s complex windfall tax will continue
Rishi Sunak can count it as a minor triumph: the complex structure of his windfall tax looks likely to work as intended in the case of Serica Energy, a small North Sea operator. The company said more generous tax incentives on its £60m investment programme this year “will offset a large element of the energy profits levy that would otherwise be payable”.
Yet there seems to be an arbitrary timing element at work here. Serica was planning to invest £60m anyway. Other firms will have just completed a major spending round, and won’t get a compensatory benefit, or not to the same extent. Complaints about complexity will continue, one suspects.
