Musk’s ”tweet will send this Twitter circus show into a Friday the 13th horror show,“ Wedbush Securities equity analyst Dan Ives says
Without further elaboration, the business world is left wondering whether Musk is getting cold feet — or looking to drive the purchase price down. Twitter’s stock plummeted nearly 10% on Friday, closing at $40.72.
“The implications of this tweet will send this Twitter circus show into a Friday the 13th horror show as now the Street will view this deal as 1) likely falling apart, 2) Musk negotiating for a lower deal price, or 3) Musk simply walking away from the deal with a $1 billion breakup fee,” Wedbush Securities equity analyst Dan Ives told TheWrap in a statement.
Let’s review more of the implications of Musk’s latest eyebrow-raising tweet-storm.
Is Musk getting cold feet?
It’s hard to know exactly what someone like Musk is thinking. He has been known to change his mind often, and he has a reputation as both an online troll and sometime troublemaker (especially with regulators who have objected to tweets speculating about business moves of the companies he runs). It’s possible that the world’s richest person has started to change his mind. In the past, he said he would take Tesla private — but reversed course.
Media Matters President Angelo Carusone warned that Musk’s tweets should be read with “tremendous skepticism and with a critical eye.” His Friday tweet was not about bots at all, Carusone said, but rather about Musk’s obligations to Tesla shareholders and prioritizing his car company’s value.
“Let’s assume what he says is true,” Carusone tweeted Friday. “Then that means he put together a $44 billion offer without basic essential information. At best, it is reckless and business associates should run now.”
Is Tesla’s stock drop complicating the finances for him?
The deal was expected to close later this year, subject to the approval of Twitter stockholders and regulators. Musk has secured $25.5 billion of fully committed debt and margin loan financing and is providing approximately $21.0 billion as an equity commitment. The purchase price represents a 38% premium to Twitter’s closing stock price on April 1.
But with Tesla stock tanking nearly 30% in the past month, Musk’s plan to use his personal wealth to pay for Twitter could become more challenging. He has been selling his Tesla shares and putting them up as collateral for personal loans to raise the money.
“In our opinion, with the nature of Tesla shares being used as leverage for Musk in the deal, the massive sell-off seen in Tesla and the overhang created by this deal has turned into a life of its own,” Ives said. “The initial reaction will be positive for Tesla shares as now the Street will view the chances of a [Twitter] deal as less than 50%.”
Is challenging Twitter’s calculations of its spam/fake accounts a way to get out of deal — and the breakup fee?
According to his agreement with Twitter, Musk is on the hook for a $1 billion payment if the deal falls through. Backing out of the deal could make things ugly, as there is a “specific performance clause” that forces Musk to commit to paying for Twitter assuming his debt financing is still available.
“If Musk does decide to still go down the deal path, a clear renegotiation is likely on the table which calls into question a number of topics (financing path, leverage of Tesla stock, prior financing partners, employee reaction),” Ives said. “Many will view this as Musk using this Twitter filing/spam accounts as a way to get out of this deal in a vastly changing market.”
What are the consequences for Musk if the deal falls apart?
Musk could try to pull out or renegotiate the deal by raising “adverse event” reasons, but Twitter could also argue that he could have better informed himself about the business before making the offer. If it goes to court, the bar for this kind of claim is high. And Musk may face a hard time making the case, since the deal came together so quickly.
What are the consequences for Twitter?
The San Francisco-based giant faces an uncertain future under Musk’s potential ownership. The billionaire has suggested he would change the platform’s content moderation policies, as well as implement ways to target crypto scams and make commercial and government users pay a fee for the service. Some of these changes would be up in the air if the deal is killed, but the company can continue to do what it wants.
With the company struggling to increase users and revenue over the years, Musk’s proposal was a potential lifeboat. This week, Twitter CEO Parag Agrawal already fired two of the company’s execs and announced a freeze on new hiring and plans to cut costs. This could all still happen regardless of whether the deal goes through. But going private under Musk would allow the company to move away from quarter-by-quarter shareholder pressures to turn a profit. Under private ownership, Twitter could experiment with other business models.