Why Musk's Buffett-like playbook won't work on Twitter

"My offer is my best and final offer." Elon Musk's $43 billion bid for Twitter takes a page out of Warren Buffett's take-it-or-leave-it playbook.

But investment bankers, investors and analysts said he needed a blowout bid and more details on his financing for this strategy to work. They added that Musk's track record of reversing his positions also weighs against him.

Buffett is known for clinching large deals through his conglomerate Berkshire Hathaway, such as the $11.6 billion deal to buy property and casualty reinsurer Alleghany and his $37 billion acquisition of aerospace equipment maker Precision Castparts, by making only one offer and refusing to negotiate.

These offers were viewed as fair by their acquisition targets and were backed by committed financing from Berkshire Hathaway. Musk's bid, on the other hand, was deemed too low by the market and too thin on financing details.

In 2018, Musk, who is the chief executive of luxury electric carmaker Tesla, tweeted that there was "funding secured" for a $72 billion deal to take Tesla private but did not move ahead with an offer.

He and Tesla each paid $20 million in civil fines, and Musk stepped down as Tesla's chairman to resolve US Securities and Exchange Commission claims that he defrauded investors.

"Warren has demonstrated over 40 acquisitions in 60 years that when he says something, he does it. His word has enormous value," said Lawrence Cunningham, a law professor at George Washington University who has written extensively on Buffett.

"With Elon, I wouldn't trust him … there's no reliability there."

Buffett, Musk and a Twitter spokesperson did not respond to a request for comment.

Offer Represents 38% Premium

Musk's cash offer of $54.20 a share, which values the company at $43 billion, represents a 38% premium to Twitter's April 1 close, the last trading day before his 9.1% stake in the social media platform was made public.

But it is lower than where Twitter shares were trading as recently as November. For most of 2021, the shares traded at more than $60.

Uninvolved investment bankers say the closest comparison would be PayPal Holdings' offer for Pinterest, which the payments firm withdrew last October after a negative investor response to its interest.

The offer valued Pinterest at 17.4 times sales. By comparison, Musk's offer values Twitter at only 8.6 times sales.

Twitter shares ended trading on Thursday at $45.08, a 1.75% drop since Musk unveiled his $54.20 per share offer, reflecting wide investor scepticism that a deal will happen.

"I don't think the Twitter board will have a really hard time saying no to this deal. It's not an excessive premium and it's not excessively valued now," said Chris Pultz, portfolio manager for merger arbitrage at Kellner Capital.

Musk sold more than $15 billion worth of his Tesla shares last year, about 10% of his stake in the electric car maker, partly to settle a tax obligation.

It's not clear how much of that Musk now has available for a Twitter bid, and it's possible that he could sell more Tesla shares or borrow against them. He provided no details about his financing in a regulatory filing on Thursday.