On Thursday, billionaire Tesla CEO Elon Musk announced he had made an offer to buy Twitter for $43 billion.
Musk made his move not long after Twitter announced it had failed to reach an agreement with him about joining its board. That, in turn, came about after Musk disclosed that he had purchased more than 9 percent of Twitter, making him its largest individual shareholder.
Musk has not been shy about his motives for wanting to buy Twitter. He said he believes it must be less restrictive about moderating speech.
But his willingness to make the deal is now being met with questions about his ability to actually complete it — and Twitter's willingness to accept it.
How would Musk finance the deal?
The first question is whether Musk is able to follow through with the deal at all.
Right now, according to Bloomberg, Musk has about $3 billion in readily accessible cash. So he would have to finance the rest of the deal some other way, whether that is selling shares of Tesla or borrowing money.
Musk owns about 173 million Tesla shares. However, securities filings show that 88 million of them are being used to back personal loans. Still, he has the option to buy 60 million more shares, the filings show.
In a live interview Thursday in Vancouver for the TED2022 conference, Musk said "I have sufficient assets" when he was asked whether funding had been secured for the potential purchase.
In 2018, in his capacity as CEO of Tesla, Musk claimed he was considering taking the electric car company private and that he had secured funding — a claim for which the U.S. Securities and Exchange Commission penalized Musk and Tesla after an investigation.
If Musk were to use Tesla shares, Twitter could still reject his offer on the grounds that the financing he had secured was not reliable, said Kevin Kaiser, an adjunct full professor of finance who is the senior director of the Harris Family Alternative Investments Program at the Wharton School of the University of Pennsylvania.
Twitter "would have to make a judgment of the currency of what was being offered if it is not cash," Kaiser said.
Could Twitter's board reject the bid?
Twitter's board does not have a fiduciary duty to accept Musk's bid, despite the generous offer, if it deems it not to be in the company's best interests, Kaiser said.
Thanks to the so-called business judgment rule, a U.S. company's board of directors has wide latitude to determine how it evaluates its ultimate fiduciary duty, he said.
So even though some shareholders would be likely to sue Twitter should the board reject Musk's offer, the suits probably would not get far, Kaiser said.
"In this case, there isn’t another bidder," Kaiser said, "so the board has to discuss is it in best interest of the company to be privately owned — and privately owned by Musk. That’s a really difficult analysis, but it's very possible that they can use the business judgment rule to say it is not in their interest if it goes private, and private by Musk."
Representatives for Twitter referred requests for comment to its statement Thursday morning saying it was reviewing Musk's bid.
Kaiser said he would be "horrified" if the government tried to intervene in the transaction given that a private investor was seeking to make a bid for a publicly traded company. At the same time, Twitter is a unique company in that many people deem it "societally important" — including Musk himself — Kaiser said.
Representatives for the Justice Department did not immediately respond to emailed requests for comment.
In a securities filing Thursday, Musk said the proposal was his "best and final offer" while reiterating his disagreement with Twitter's leadership over the company's direction.
"It’s a high price and your shareholders will love it," Musk said in the filing. "If the deal doesn’t work, given that I don’t have confidence in management nor do I believe I can drive the necessary change in the public market, I would need to reconsider my position as a shareholder."
At least one major shareholder has already announced his opposition. In a tweet Thursday, Saudi Prince Al-Waleed bin Talal, who according to Bloomberg owns 4.4 percent of Twitter, said he did not believe Musk's offer "came close to the intrinsic value" of the company.
Twitter shares ended Thursday trading down 1.7 percent to close at $45.08.
What could it mean for misinformation and harassment on Twitter?
As Musk has dramatically ramped up his involvement with Twitter in the last week, observers, and reportedly Twitter employees, have wondered whether he might radically change how the platform is moderated.
In recent years, Twitter has taken a more aggressive approach with its rules about harassment, misinformation and other content it has deemed unfit for the platform. Twitter banned President Donald Trump while he was still in office after it said he encouraged the Jan. 6, 2021, riot at the U.S. Capitol. Numerous parties have criticized the moderation efforts, including Musk, who has called himself a "free-speech absolutist."
On March 26, 12 days after he bought his Twitter shares, Musk tweeted: "Given that Twitter serves as the de facto public town square, failing to adhere to free-speech principles fundamentally undermines democracy. What should be done?" In later tweets, he suggested that he was interested in being hands-on in shaping the direction of the company and the features on the platform.
Asked why he wants to buy Twitter at the TED event, Musk replied, “I think it's very important for there to be an inclusive arena for free speech.”
Musk made numerous suggestions in the TED interview about how he would change Twitter, saying he would like to make its algorithms available to the public so people can see how certain content is being treated.
He also repeatedly suggested that he believed most speech that falls within the constraints of the law should be allowed on the platform.
"If in doubt, let the speech, let it exist. If it's a, you know, a gray area, I would say let the tweet exist," he said. "It's just really important that people have the both the reality and the perception that they're able to speak freely within the bounds of the law."
Twitter critics have expressed excitement about the possibility that the platform could become less restricted. Rep. Lauren Boebert, R-Colo., tweeted April 4: “Now that @ElonMusk is Twitter’s largest shareholder, it’s time to lift the political censorship. Oh… and BRING BACK TRUMP!”
Social media analyst, Matt Navarra, who has worked with Google, the BBC and the United Nations, said it might be too early to speculate about the details of what changes Musk would bring, but he said unrestricted free speech without moderation on social media would be an unattractive prospect to many.
Referring to the platform Trump founded last year, Navarra said: "We know from examples like Truth Social that creating a platform that is geared around ‘free speech’ and relaxed or no kind of moderation is not an attractive proposition to most people, and neither are they too interesting or good opportunities for advertisers.
"No one wants to spend hours in an app of people just being vile and controversial and argumentative and polarizing. That isn’t enjoyable, and advertisers certainly won’t stick around for that for very long."