Twitter’s shares dropped on Friday as new doubts emerged over Elon Musk’s planned $44 billion acquisition of the platform. At market open, the stock plunged more than 10%, trading as low as $14 below the nominal acquisition price of $54.20 per share.
The decrease was triggered by a series of ambiguous statements from Musk, who said the acquisition was “temporarily on pause” pending an inquiry into the overall number of fake accounts on the site. In a filing, Twitter stated that bots account for less than 5% of daily active users, although many feel the true amount is much higher.
Musk later stressed that he was “still committed to the acquisition,” although there is still a lot of doubt about the deal.
There have been major market swings for both Twitter and Tesla, the source of the lion’s share of Musk’s personal fortune, since the terms of the deal were formed. As part of a broader market decline, Tesla stock has lost more than 25% since Musk made his offer on April 14th.
Because a portion of the cash was initially secured through loans against Musk’s interest in Tesla, the decreasing share price might have a significant influence on Musk’s ability to finalize the deal. However, according to Bloomberg, Musk has secured for new equity partners to help finance the acquisition, eliminating the need for the loan.
Twitter has also struggled, recently reporting an overcount of user numbers in its earnings report and continuing to lose money. Recently, CEO Parag Agrawal sacked two senior employees abruptly, raising serious doubts about the company’s future. When combined with the market downturn, some analysts predict Musk may try to renegotiate for a lower price.
A $1 billion termination fee is included in Twitter’s April 25th agreement with Musk if either party leaves without good reason, however, there are complicated conditions on when and how it can be activated. Even if Musk does trigger the termination fee, it will be a small portion of the total contract cost, and likely less than the cost savings offered by lower pricing.
Financial analysts disagreed on whether Musk’s bot concerns had jeopardized the acquisition. “The Street will see this deal as 1) likely falling apart, 2) Musk negotiating a lower deal price, or 3) Musk simply walking away from the deal with a $1 billion breakup fee,” wrote Wedbush Securities’ Daniel Ives, concluding that “many questions and no concrete answers as to the path of this deal going forward.”
Others, such as Craig Huber of Huber Research Partners, were more optimistic. “Our perspective is that Elon Musk is performing more due diligence on Twitter in terms of bots and bogus accounts, as he should, and that he will eventually buy Twitter,” Huber told The Verge. “He understands what he’s doing, as he’s demonstrated time and time again.”
