Elon Musk, the world’s richest man, got cold feet over his April 19 purchase of Twitter for $54.20 a share or $44 billion. With Twitter’s stock sinking to $37.29 share or 30% its no deal. Reports of Musk getting sour grapes have been going on for days with reports about his concerns about so-called “bots” or automatic Internet systems on the site. But by far, as a businessman, Musk is concerned about the declining stock value, with little sign of coming back anytime soon. Musk denied he’s worried about the money even though he planned on using his Tesla stock to finance the Twitter purchase. Outrage on the Intenet and in the media opposed Musk’s purchase largely because they don’t like Musk’s conservative politics. Along with the rest of the stock market, Tesla has been melting down, losing some $300 million in market cap since Musk inked the Twitter deal April 29.
Wedbush Securities analyst Dan Ives thinks the deal is less than 50% to go through, now that Musk raised objections. Once Musk and 45-year-old former Twitter CEO Jack Dorsey said it was a mistake to ban former President Donald Trump, and his 93 million followers from Twitter, the deal seemed to head South. Liberal media types don’t approve anything endorsed by conservatives. Ives thinks that Musk’s concerns about “bots” on Twitter is like the “dog ate my homework excuse,” coming up with anything to renegotiate the deal. All the machinations on the Twitter board to approve the sale to Musk were absurd, considering they knew shareholders got a sweetheart deal at $54.20 a share. Most Internet or social media stocks are grossly inflated with price-to-earnings-ratios through the roof. Twitter was always one of the least profitable of all the social network stocks.
Ives thinks that Musk wants to go back to the Twitter board to renegotiate the deal, realizing that he over paid for the popular social network company. “Our view is while Musk is committed to the deal the massive pressure on Tesla’s stock since the deal, a changing market/risk environment [over] the last month, and a number of other financing factors has caused Musk to get ‘cold feet” on the Twitter deal with the bot issue not a new issue and like more of scapegoat to push for a lower price,” Wedbush said. Musk knows, better than most that any stock purchase in a declining market comes with risks. He also knows that Twitter’s algorithm has not been the most profitable among social network stocks. Musk looks pause the deal until he’s satisfied with the bot issue, but, more importantly, with the current valuation, some 30% down from his original April 29 purchase price.
Buying Twitter was an ego-trip for Musk who likes to opine on various topics, because he already has a Twitter account to get out his views on various topics, including the War in Ukraine and Biden’s management of the economy. Twitter’s board isn’t likely to go back to Musk for a better deal because they’re too consumed with their own profits. Ordinary shareholder wants the highest price per share, aren’t concerned about offering billionaires big discounts. But if Musk’s deal falls apart, it’s unlikely they’ll get a better deal from anyone else, certainly not from someone like Warren Buffett. Buffet wouldn’t touch risk-averse Internet or social network companies with a 10-foot pole. If the bear market continues, Musk’s Tesla stock could be work 50% of its current value, a bad time to invest in Twitter unless it’s at a bargain-basement price, not the $44 billion he paid for the company.
Twitter’s board knows there are no suitors for the company, largely because it’s the least profitable of the brand-name social network companies. “And Musk know that, which is why in a changing market and with Tesla losing –$300 billion of market cap since the deal we view the $44 billion Twitter deal as having less that 50% [chance] to get done as of today,” Wedbush’s Ives said. Musk would lose $1 billion in a breakup fee if the deal doesn’t go through but Wedbush thinks the stock, if Musk backs out, would plummet to under $30 a share. In a rising interest rate market, the cost of mergers and acquisitions has just gotten more expensive. Higher interest rates mean the Musk’s borrowing costs are higher than when the deal was first inked. If Twitter’s board were smart, they’d go back to Musk as ask what would make the deal more worthwhile, not take their $ 1 billion and walk away.
Musk isn’t about to buy Twitter and put Tesla under the gun. Unlike Twitter, there are plenty of hostile takeover candidate for Tesla Motors, should musk ever stretch his financial sources to the breaking point. “Musk is still committed to the deal per his tweets and appears like he wants to get it done, but the financing stress and equity financing overhang on his golden child Tesla has cost a long shadow on this deal,” Ives said. Whatever talks with Twitter’s board goes on, the public has been kept in the dark, while the world’s most successful entrepreneur contemplates his next moves. With Twitters’s stock price down 30% and company’s value at $30.2 billion, Musk has second thoughts. Doing anything to jeopardize the solvency of Tesla would put Musk at risk for a hostile takeover, something he doesn’t want. Taking a $1 billion loss to back out of the Twitter deal looks better all the time.
