After Elon Musk’s offer to take it private for $44 billion was accepted on Monday, many investors are concerned about their Twitter shares.
Oct. 5, 2022
After months of back and forth between Elon Musk and Twitter (NYSE: TWTR), the former has finally relented and agreed to acquire the social media platform for the original price of $44 billion.
Under the original terms of the deal, shareholders would receive $54.20 in cash for each share of Twitter stock they own, matching Musk’s original offer and marking a 38% premium on the stock price the day before Musk revealed his 9% stake in the company last in March. In the deal proposed in April, Twitter was to be taken private.
Twitter released a statement back then upon initially accepting the deal:
“The Twitter Board conducted a thoughtful and comprehensive process to assess Elon’s proposal with a deliberate focus on value, certainty, and financing. The proposed transaction will deliver a substantial cash premium, and we believe it is the best path forward for Twitter’s stockholders.”
While an awful lot has happened since that offer was originally accepted — including whistleblower claims and the public release of Musk’s private text messages — the same question is on everybody’s lips…what now?
What happens to my shares when a company goes private?
In most cases of companies being taken private, it is a matter of weeks and not days. Then, once private, a company’s shares can no longer be traded publicly because the company is delisted from the public exchange on which its shares once traded. Until then, investors can continue to invest in a business that is going private.
So, for example, once the Twitter deal is officially closed and it opts to go private, Twitter shares will cease to trade on the NYSE and holders will receive $54.20 per share owned.
Pros and Cons of Going Private
- Fewer regulatory requirements as a business.
- No longer answerable to public shareholders, thus freeing up decision-making time.
- More time to focus on growing the business instead of simply pleasing the market.
- No more quarterly reports.
- It can be more difficult to raise capital, thus limiting funds for research and growth, etc.
- Private shareholders hold more power, thus making it more difficult to manage disgruntled investors.
- Selling shares in the company is much more difficult if private shareholders are looking for an exit.
The Bottom Line
When a company goes private, shares are often purchased at a premium and the company is delisted from public stock exchanges. Shareholders give up ownership in the company in exchange for that premium price for each share that they own, but can no longer buy shares in the company through a broker.
In short, while it can be disappointing to see investments go private, retail investors like us really have little to no control over buyouts like this. With that in mind, all we can do is take it on the chin and either cash out or reinvest funds elsewhere.