The whole world is buzzing, or tweeting, about Twitter as the recent news that Tesla CEO Elon Musk tendered a $44 billion offer to buy the company, and the board of directors accepted the offer. So what happened, what happens next, and what happens to shareholders?

First, let’s define a few key terms:

Publicly Traded Company – A company that issues stock that can be purchased by the general public (usually on a stock exchange). The owners of the stock (both individual and institutional investors) are the ownership of the company. They participate in the economic growth of the entity, and have a limited say in overall decision making through shareholder votes.

Publicly traded companies must comply with specific financial reporting requirements required by the Security and Exchange Commission (SEC). This means pubic companies are forced to make public much more information about their internal finances than private companies do.

Private Company – A firm that operates under private ownership. Private companies may issue stock to owners/partners, but it is not traded on an exchange and cannot be purchased by the general public. Due to the fact the stock is not traded, private firms do not need to comply with the filing requirements of the SEC.

Privatization (taking a company Private) – Most people are more familiar with the process of taking a private company public. The most common avenue to do this is through an Initial Public Offering (IPO) where the private shares of a company are sold to public investors, and the newly open stock begins trading on public exchanges.

Taking a publicly traded company private can be generally described as the reverse of this process. How this works:

– Tender offer: The group attempting to take the company private approached shareholders with an offer to buy the outstanding shares at a specific price. This price is almost always higher than the price the stock is currently trading.

– Accepted/Rejected: If the majority of shareholders vote to accept the tender, then the process of going private is started.

– Approval: Even though the private company will no longer be regulated by the SEC, the deal does still need to be approved by regulatory bodies, and can be rejected on antitrust grounds.

– Payout: When the deal officially closes, shareholders are paid the agreed upon price per share and the stock is delisted from the exchange it was trading on.

1. What happens to Shareholders?

When the deal is official and closes, shareholders will receive a payout equal in value to the number of shares they own, multiplied by the share price. The mechanics are the same as a sale of stock, only in this case it is done automatically.

2. What are the tax implications?

There are still tax implications for investors. The cash per share received by the shareholder will act as the sale price, and the investor will have a realized capital gain or loss on that sale based on their cost basis.

If their cost basis is higher than the deal price, it will be a loss, if it is lower it will be a capital gain and taxes will be due.

3.What are the specifics of the Twitter deal?

In mid-April of 2022 Elon Musk officially put forward a tender offer to buy Twitter and take it private at a price of $52.40 per share. The total deal will cost about $44 Billion Dollars. This was after Musk disclosed he had acquired roughly 9% of outstanding Twitter stock on the open market.

A week later, the Twitter Board of Directors announced they would accept the tender offer, indicating that the majority of shareholders would vote to approve it.

4. Is it a done deal?

No, although it is an easier process than an IPO, it is not a done deal. The deal must still pass the regulatory process and Elon Musk must be able to deliver the financing necessary to pay existing shareholders.

5. Does Twitter stock still trade?

Yes, Twitter stock is still trading. Theoretically it should trade close to the agreed upon tender price of $52.40. If it is trading below the agreed upon price, it is a sign that some investors believe the deal will fall through.

Investors can wait to get the deal price, or sell at any time. As we discussed, there is no difference in tax treatment, capital gains will still apply.

How We Can Help

If you have Twitter stock and want to know what it means for you, or if you would simply like to learn more, contact us online or at 410-685-9685.