Convergencia Research, Consultoría especializada en Latinoamérica y Caribe
Tuesday, April 26, 2022

Musk acquires Twitter and opens new scenario for social networks

It will apply substantial technological changes, such as open source algorithms, but also content policies, with authentication of only human accounts and elimination of censorship. The business plan points to a further expansion of Twitter based on transparency.

Finally, Twitter's board of directors accepted the offer of approximately US$44 billion to sell the company to Elon Musk. Now, the transfer of control to billionaire Musk raises questions about the future of the influential social media platform.

Shareholders of the firm will receive US$$4.20 in cash per each Twitter common share they own at the closing of the transaction. The purchase price represents a 38% premium over the company's closing price on April 1, a day before Musk announced that he had accrued a 9% stake in the company.

After he first launched his bid to acquire the platform on April 14, Twitter issued a "poison pill," a strategy to limit Musk's capability to build a substantial shareholding. However, the firm's board was forced to come to the negotiating table over the weekend after the businessman revealed that he was backed by a US$46.5 billion financing package to reach the deal.

That package included US$25.5 billion in debt provided by a group of banks led by Morgan Stanley, his financial adviser, and another US$21 billion in fresh capital. The debt component includes a US$12.5 billion loan backed by his Tesla shares.

With this deal, Musk will have to undertake US$33.5 billion of the financing package, although he can reduce his exposure by bringing in other investors to finance the equity portion of the deal.

Twitter shares rose 5.7% during trading on Monday, to close at US$51.70 per share. According to data from its balance sheet for last year, the company has 217 million active monetizable accounts, about 5% of the total number of people who use social networks in the world. Throughout 2021, its sales totaled US$5 billion, with an increase of 37% compared to the end of 2020. All in all, it produced a negative net result of US$221 million.

What will happen. Musk's plan for Twitter is already laid out. In the first place, take it out of the stock market; that is, Twitter will no longer be a public company listed on the Stock Exchange and, therefore, subject to the scrutiny of shareholders.

Without that challenging look on him, Musk aims to modify substantial aspects of Twitter, especially the content control policy. In the last two years, social platforms, and Twitter among them, have been criticized both for their lack of control over content that is harmful to children and adolescents, misogynistic, racist and hateful. At the same time, the networks have been disapproved of the censorship they apply to political comments that, according to unknown criteria, would affect democratic life.

Musk has stated that policy will change in two ways. On the one hand, by making the algorithms something public through open source developments, which will allow developers to intervene in their continuous improvement and, at the same time, open the criteria for developing algorithms to criticism.

On the other hand, Musk has said that he hopes that Twitter will become stronger as a place for public discussion, for which he aims to erase the presence of bots and troll farms and move to the consolidation of human-only accounts with prior accreditation.

Behind this idea of ??generating a social benefit there is a specific business plan that is based on Twitter gaining in transparency over the rest of the social networks, hit by the lack of clarity in their decisions. On that basis, Musk expects to achieve a further expansion of the network.

All in all, Musk will have to overcome suspicions and regulatory controls. This morning it transpired that the United States government will revitalize a communications bill with a view to strengthening controls over social networks. In Joe Biden administration they suspect that Musk's move will have a collateral effect for the benefit of the Republican party, several of whose leaders have been excluded from the network since the attempted assault on the US Congress on January 6, 2021. Among them is Donald Trump himself. With the mid-term elections, next November, on the horizon, the possibility that these politicians recover their presence on the network worries Democrats due to their electoral impact.

On the other hand, from the European Union, Thierry Breton, European Commissioner for the Internal Market, assured that Twitter "will have to fully adapt to European rules" regardless of the orientations of the new shareholder in terms of freedom of expression, he considered.

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