Entertainment

Why Elon Musk Might Not Actually Be Able to Buy Twitter


There have been a lot of questions swirling since Elon Musk announced plans to buy out Twitter, such as how the “free speech” evangelist would approach content moderation, the business model, user experience, and, of course, whether he’d let Donald Trump back on the platform. Certainly looks like it! Or as my Vanity Fair colleagues recently put it: “Will Elon Musk save Twitter or burn it to the ground?” But before we get ahead of ourselves, here’s another very pertinent question: Will he even be able to buy Twitter?

As Musk continues his fundraising drive to complete his $44 billion Twitter takeover, ongoing market volatility could lead the world’s wealthiest man to renegotiate the deal. Last month Twitter’s board of directors agreed to sell the company to Musk outright for $54.20 a share, with the Tesla CEO selling $8.5 billion worth of shares in the electric-car company for funding. He also received a commitment from Morgan Stanley and other financial institutions for $12.5 billion in margin loans secured against his Tesla stock, an amount he has since reduced to $6.25 billion after lining up around $7 billion in equity from a group of new co-investors.

Since the deal’s announcement, Tesla’s stock has plunged by more than 25% as investors worry that Musk could offload even more of his holdings in the company. Twitter shares have also taken a hit, dropping to $44.05 on Thursday afternoon amid a four-day losing streak. Given that Musk’s offer now sits at $9 billion above Twitter’s current $35 billion market value, investors could buy up Twitter stock at its currently declining rate in the hopes that there will be a $54.20-per-share check waiting for them at the end of the takeover tunnel. But it seems the market does not believe the $44 billion deal will materialize.

When markets closed on Thursday, Twitter was trading at $45.08 a share, its lowest day-end mark since the company’s board agreed to sell the platform to Musk last month. Earlier in the day, the stock dipped as low as $43.33.

Tesla’s and Twitter’s sliding share prices combined with the ongoing plunge in the tech market could make Musk’s original Twitter offer price “a bridge too far,” according to Christopher Rupkey, the chief economist at FWDBONDS. “The price that was agreed upon occurred before the market collapsed in recent days,” Rupkey said in an interview with Vanity Fair. “It’s a bit of a perfect storm, what he’s getting hit with right now. The next shoe to drop would be something that suggests the deal is looking a little more shaky…and whether or not the financing can still be kept in line.”

Musk, who is reportedly still seeking equity from co-investors, could still try to renegotiate his original offer price or walk away from Twitter entirely. He cannot exit the deal unscathed, though, if Twitter refuses his renegotiation efforts, as Musk is on the hook for a $1 billion breakup fee.

Roger Kay, founder and president of Endpoint Technologies Associates, explained that Musk’s “disturbingly anarchic approach” has contributed to the market skepticism about the deal’s viability. “You really don’t know what to expect from him,” explained Kay in an interview with Vanity Fair. “I wouldn’t be that surprised if he suddenly reconfigures his offer and lowballs it. He’ll just say, ‘Well, it’s not worth as much as I said.’”

“There are ways to invoke clauses that would cause the deal to fall apart if Musk doesn’t really want to do it,” Kay added. “That’s what the Street is looking at—they’re thinking it may not be that great a deal after all.” 

Hindenburg Research, a firm that has a short position on Twitter’s stock, published a report on Monday stating that there is “a significant risk that the deal gets repriced lower.” While Hindenburg voiced support for “Musk’s efforts to take the company private” and said it believes Musk “could get it done,” it also wrote that he has no reason to follow through with his initial offer. The report went on to question how Musk would finance the buyout, writing that “placing both Twitter (and ultimately Tesla’s) future on a foundation of further equity-backed margin loans, or potentially more sales of Tesla equity amidst a volatile market, adds risk to both enterprises.”

However, Rupkey, who noted that you can never fully count out Musk, suggested that Twitter’s stock has not “fallen far enough yet to indicate that Wall Street is thumbs-down on this and believes that the deal is not going to go through.”           

As for Musk, he responded to the Hindenburg report by shrugging it off with a line from Monty Python, tweeting, “Interesting. Don’t forget to look on the bright side of life sometimes!”





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