Elon’s Twitter Takeover: The Importance of Synergies in Acquisitions

If you have been following the news at all in recent months, you are probably somewhat familiar with Elon Musk’s takeover of Twitter this past year. A natural question that may come to mind is why did Musk, CEO of Tesla and SpaceX—two companies vastly different from Twitter—decide to make an acquisition far from his typical area of expertise? It was largely off impulse that Musk decided to make this acquisition, which explains the disappointing results it has produced thus far—both for Twitter and the electric-vehicle giant, Tesla. Furthermore, it explains why Musk “spent months trying to back out of the $44 billion purchase agreement,” making it obvious that he was not in the right state of mind when he made the purchase back in April of 2022 (O’Brien). 

So, what was the emotion that guided Musk’s impulsive decision to make this acquisition that has seemingly backfired? The answer lies in politics, specifically, the need to express his opinions regarding free speech—a controversial issue surrounding Twitter in recent years. In particular, the banning of Donald Trump has caught the attention of many right-winged social media users who believe Twitter should be a platform for free speech—Musk included. 

Regardless of whether or not you believe in Musk’s vision for acquiring Twitter, this acquisition did not make sense for financial reasons. Musk’s purchase price of Twitter represented a “38% premium to Twitter’s closing stock price on April 1, 2022,” (Feiner) meaning he paid 138% of the standalone valuation of the company at the time. For context, acquirers typically pay a premium for one of two reasons: to make improvements in operations via control or to exploit synergy opportunities between the acquired company and another company that they already own. The problem in Musk’s case is that he had neither.

With regards to control, Musk did not acquire Twitter with the expectation of growing the company. His reasoning for acquiring the company, which was largely politically motivated, impedes Twitter’s growth by getting rid of the polarized group of users who do not agree with his philosophy—namely left-winged individuals who supported the banning of Donald Trump. Furthermore, since the business models of Twitter, Tesla, and SpaceX are all completely different, there are little to no opportunities for overlap between each of the companies, meaning that there are very little synergy opportunities to exploit. 

In addition to not making sense financially, the decision to take over Twitter was also impractical from a lifestyle perspective. At the moment Musk is the CEO of two other large, intensely-operated companies that already consume up to 80 hours per week of work for him. With the addition of Twitter, Musk has revealed that he is now working around 120 hours per week, at least until Twitter is set on a good path moving forward. Quite frankly even if you are one of the smartest individuals on the planet, working 120 hours a week on three completely different business models is simply not sustainable, which explains the fear investors of Tesla felt when Musk initially made the purchase back in April where shares already had been low from a poor performance in 2022. 

Despite this, I am here to offer my advice to Musk on how he can make the most out of a poor situation, specifically from a financial perspective. Because he has already polarized Twitter users into two categories—those who love him and those who hate him—I believe that he needs to jack up his margins for those who strongly support him. I believe that by raising prices, whether it be for advertisements or for verification, will allow him to extract as much value as he possibly can out of his strongest supporters.

With that being said, I know Musk has been doing a lot to turn Twitter around, from paid verification to massive company layoffs, and I am curious to see what holds for the future of such a powerful company. It should be interesting to watch Twitter’s next steps, and whether or not Musk will implement any of the price increases or other methods of benefiting the financial performance of Twitter to bolster his popularity with those that support him, or else an important lesson about the need for acquisitional synergies will be learned.