Is Elon Musk's $44 billion bid for Twitter a $1 billion joke by the world's richest man?
It is a possibility that can't be ignored, as investors try to make sense of Musk's latest shenanigans early Friday morning. He said on Twitter that his $54.20 per share offer is on hold due to details that support a calculation that fake accounts represent less than 5% of all Twitter users, rather than in a U.S. regulatory filing.
When the market opened on Friday, Twitter s TWTR fell nearly 9%. Since Musk's April 14 unsolicited offer to buy Twitter, its stock has never reached the offer price, reaching a high of $51.70 on April 25 in recent weeks and has only surpassed Musk's offer a few times.
See also: Musk's bizarre tweet is a reminder that retail investors eyeing Twitter should proceed with caution.
A couple of hours later, Musk said he was still committed to the acquisition but the saga has to remind investors of his infamous funding secured tweet in 2018, when he was in talks to take Tesla Inc. TSLA private. The tweet led to an investigation by the Securities and Exchange Commission and his own personal battle with regulators over what he can say on Twitter as the chief executive of a publicly traded company.
The Street will view this deal as 1 is likely falling apart, 2 Musk walking away from the deal with a $1 billion breakup fee, or 3 Musk walking away from the deal because of the tweet, according to Wedbush Securities analyst Dan Ives.
Even though many employees opposed the deal and vocalized their concerns, Twitter s board had actually accepted Musk's offer and was prepared to go ahead with his ownership, and he plans to take the company private.
Musk is trying to get the price of the deal down since Tesla's stock price plunged in the market downdraft of the past few weeks. Ives said in a phone interview that it is a different market than it was 30 days ago. The story changes when Tesla loses $300 billion in market cap. Musk is using some of his Tesla stock to come up with some cash and using shares as collateral for the loans to finance the deal.
New Constructs CEO David Trainer said in an email that it was hard to be surprised that the deal is temporarily on hold. The calculus for deals like Musk Twitter is changing because of the speculative forces that have been artificially boosting stock prices over the past few years. The board of Twitter is in a difficult situation. After realizing that there were no other offers coming in as a white knight to save it from Musk's hostile bid, the board agreed to a deal with Musk. The issue of fake user accounts is a well-known dynamic that Twitter has been working on for the past couple of years.
They could be a bit off of what they estimated on Twitter, but it is not dramatically off, Dorsey and his team cleaned that up, Ives said. The deal is not going to be suspended for a million years because of this, and it comes up in due diligence. He said that the investors of Twitter are in a hard place and are between a rock and a hard place.
It could go one of two ways, he Musk walks and pays the billion or a lower price comes into play, Ives said. Angelo Zino, an analyst at CFRA Research said he believes that walking away may be in his best interest, because he believes that if he walks, Twitter's stock goes to the low 30 s.