Is Twitter stock a buy amid Elon Musk takeover speculation?

Elon Musk has made an offer to buy Twitter after building up his stake in the company. Should I be looking to buy Twitter stock now?

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Twitter (NYSE: TWTR) stock has risen over 26% in the past 30 days. The primary reason for this is the announcement that Elon Musk, CEO of Tesla, wants to buy the social media giant after building up his stake in the company. With much speculation flying around in the media, and the Twitter board making a series of announcements, is now the time for me to buy Twitter stock?

The story so far

The story began back in late January when Elon Musk began building his stake in Twitter. By March 14 he had amassed a 5% holding in the company. Fast forward to April 4, news broke that Musk had a 9.1% of the stock. The shares surged over 27%. After this news, Musk was invited to join the Twitter board, which he later declined.

On April 14, the stock jumped another 7% when Musk announced he had made an offer to buy Twitter for $43bn. This equates to $54.20 which represented a 54% premium over the day Musk first invested, and a 38% premium before the investment was announced publicly.

Twitter is yet to respond to Musk’s offer but has since adopted a ‘poison pill’ strategy. This essentially means allowing investors to buy more shares to dilute Musk’s ownership. The strategy Is expected to kick in if the Tesla chief acquires any more than 15% of Twitter stock.

Just last week, Musk announced he had acquired the necessary funding for a takeover. Over $20bn of this would come from a series of loans from investment bank Morgan Stanley, with the rest coming from selling his own equity.

Twitter stock closed just shy of $49 last week, rising 3.9 % on Friday. This shows me that investors are becoming more confident that a realistic deal may be on the table.

Why I’m not keen on Twitter stock

Yet for me, the situation is too up in the air to invest. Although Twitter stock is still rising, Musk’s unpredictable nature worries me. After all, there are already rumours floating around in the media that the whole saga is just a well-designed publicity stunt. If Musk does exit the deal, then I expect Twitter stock to tank.

If Twitter accepts a $54.20 per share offer then I would be making around 10% profit. This is by no means a bad return. In fact, if I was a day trader then I might well have taken a punt. However, I prefer a long-term outlook and I invest in stocks that I think can give me that kind of growth each year consistently.

Therefore, while I find the story very interesting to watch, I will not be adding any Twitter stock to my portfolio today.  

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.

Dylan Hood has no position in any of the shares 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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