Should I buy Twitter shares with the Elon Musk situation?

Jon Smith takes a deeper look into the situation between Elon Musk and Twitter and weighs up whether it’s a smart time to buy the shares.

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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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jon Smith has no position in any share mentioned. The Motley Fool UK has recommended Tesla and Twitter. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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