April has been a busy month already for those following activity around Twitter (NYSE:TWTR) shares. Tesla billionaire Elon Musk has offered to buy Twitter, only a few days after he revealed a 9.1% shareholding in the company. With a lot of speculation being thrown around in the media, and the Twitter board already reacting, is this a good time for me to buy Twitter shares?
The brief story so far
On the first Monday in April, Elon Musk revealed that he had bought just over 9% of Twitter via his shareholdings. It wasn’t clear at this point what his intentions were. It could have been just a passive investment or a more active one to bring about change at the company.
Things changed last Thursday, when Musk offered to buy Twitter entirely for around $43bn. This trade would be at $54.20 per share. Regarding the price offered, he said that it was a “54% premium over the day before I began investing in Twitter and a 38% premium over the day before my investment was publicly announced.”
Twitter shares were trading at $39 before the initial stake by Musk was revealed. It closed for the long Easter weekend just above $45. So it’s clear that investors have taken his involvement as a positive sign overall. Yet if investors really thought the offer was a done deal, I’d expect it to be trading much closer to the offer price.
Why I’m steering clear of Twitter and Elon Musk
Personally, I won’t be investing in Twitter shares right now. There are too many moving parts and too much uncertainty to make this a viable investment in my opinion.
For example, let’s say I invest now at $45. The best-case scenario from a purely share-price-focused viewpoint is that Elon Musk gets his offer accepted by Twitter and I get paid $54.20 for my shares. This would net me a quick 20% profit, but that’s the maximum reward I could expect to achieve. As a long-term investor, this doesn’t appeal to me that much. I’d rather find an exciting growth stock that could offer me good gains each year for the next five years!
On the other hand, the reaction by the Twitter board hasn’t been positive. Certain protective measures against a takeover (such as a so-called poison pill) have been put in place in recent days. If things do get ugly, Twitter shares could slump. Investors don’t want to get caught up in a messy fight between the two parties. In that case, buying now at $45 could see me having to hold the share with an unrealised loss for a long period of time.
Investing versus trading
I think the situation mainly comes down to my risk tolerance and my investing mindset. I see myself as an investor, not a short-term trader. Therefore, I won’t be buying Twitter shares and so will happily watch proceedings unfold from the sidelines.