This week, Elon Musk’s $44 billion takeovers of Twitter looked to be slipping away, with the Tesla CEO and the world’s wealthiest man citing concerns about the number of fraudulent accounts on the social media network. Musk tweeted on Friday that he wanted more information on the number of bots on Twitter and that his planned Twitter takeover was “on pause.” Musk said at a private meeting in Miami on Monday that the number of false accounts may be far over 20% of the total user base.
However, Wall Street analysts regard Musk’s public declarations of skepticism as a ploy to cut the acquisition price of Twitter at a time when Tesla’s stock price is plummeting, reducing Musk’s personal fortune. According to Bloomberg News, Musk indicated at the Miami conference that a lower purchase price for Twitter “wouldn’t be out of the question.” In a research note, Dan Ives, an analyst at Wedbush Securities, said, “Our opinion, in a nutshell, is that the $54.20 transaction price for Twitter is now out the window in the Street’s viewpoint, and [it’s] about either driving a lower deal price or Musk might walk away.”
“Musk has ‘cold feet’ on the Twitter transaction due to enormous pressure on Tesla’s price since the agreement, a shifting stock market/risk climate in the previous month, and a variety of other financing considerations (equity financing),” he continued. “If Musk and Twitter reach an agreement, it will almost certainly be at a lesser price.” Twitter’s estimate of the number of bots on its site has been consistent since the company went public in 2013, according to Angelo Zino, a CFRA analyst who studies internet firms.
According to Zino, Musk, as Twitter’s biggest individual shareholder, could have received additional information on bot activity at the firm without publicly raising the matter as a possible deal stumbling block. “He could simply have picked up the phone, spoken to anybody in management, and gotten more information about it after he acquired that 9% stake in the firm,” Zino told CBS MoneyWatch.
“Probably, he’s aiming for a more advantageous price by putting the sale on hold publicly,” Zino continued. Musk’s bid of $54.20 a share for Twitter represents a 40% premium over the company’s value before the billionaire announced on April 4 that he had acquired a roughly 9% interest. Twitter has lost 20% of its value since the acquisition was disclosed, with the company’s shares dropping to $38.
The stock market’s collapse has also harmed Tesla’s shares, which Musk is counting on to fund his offer. Tesla shares account for the majority of Musk’s estimated $224 billion wealth.
A margin loan tied to Tesla’s valuation is used to finance part of the Twitter transaction. According to media estimates, Musk owes $6.25 billion in debt, while he is seeking more equity investors to help him pay down the loan. According to Fortune, Musk could survive a loss in Tesla’s stock price of up to $420 per share, below which he would be unable to pay debt funding for Twitter.
“At the altar,” says Twitter.
Tesla shares dipped to $724 on Monday. According to the Bloomberg Billionaires Index, Musk’s wealth has been reduced by $46 billion as a result of this year’s stock market decline. According to Zino, renegotiating Twitter’s price “wouldn’t be difficult for him to accomplish,” but it may cost Musk a penalty or the $1 billion breakup fee mandated in the acquisition deal.
“It only makes sense for him to do anything he can to gain leverage in his favor,” Zino remarked. Meanwhile, since it has no other choices, Twitter will be under pressure to accept a lesser price, according to Ives. He stated, “The Twitter Board is in a tight place with no one else waiting by the altar.” “For Twitter, the harsh fact is that no other strategic/financial bidder will come close to this transaction.”
Since Musk put the transaction on hold, Twitter’s stock has dropped, indicating investor skepticism. Musk’s chances of completing the deal, according to Ives, are less than 50%. Although Zino expects the sale to complete, he notes that given Musk’s erratic behavior, there are no assurances. “You never know what Elon Musk is going to do,” Zino stated. “I used to think the greatest danger was Elon Musk changing his mind – I still believe that is the biggest risk to this transaction being done.”
Source: CBS News