Twitter’s market capitalization has fallen to $9 billion below Musk’s purchase price

The Twitter logo and trading information are displayed as a trader works on the floor of the New York Stock Exchange (NYSE) in New York City, the US, on May 3, 2022.

Brendan Mcdermid | Reuters

As Elon Musk seeks ownership of Twitter, shares of the social media company are falling, suggesting some concern among investors that the deal may fall short.

Twitter is down almost 13% since hitting its high for the year in late April. At the close of trading on Thursday, the shares were trading at $45.08, well below the $54.20 Musk agreed to pay on April 27. The difference represents more than $9 billion in market value.

Although Twitter’s board of directors approved the purchase, the deal could take months to close, and there’s no guarantee that it will. Musk would have to pay a $1 billion breakup fee if he decided to leave. The Tesla CEO is worth more than $220 billion.

“The market is marginally less confident that the deal will go through due to regulatory challenges,” Mark Mahaney, an analyst at Evercore ISI, said in an email, adding that this is his “very quick interpretation” of the move. stock market

Before Musk made his offer to buy Twitter outright, he failed to disclose a more than 9% stake in the company within the SEC’s 10-day mandated deadline.

The Information reported that the Federal Trade Commission is investigating the timing of Musk’s disclosure. Bloomberg later said the FTC is reviewing the acquisition itself separately, though many experts don’t expect the deal to raise antitrust concerns.

The FTC does not disclose ongoing investigations, and an FTC spokesman declined to comment.

Dan Ives, an analyst at Wedbush Securities, estimates there’s a 90% or better chance the Musk deal will close, but sees three things contributing to the pressure on the stock.

For one thing, Twitter stock would only be valued at $20 if it remained a public company. Second, he said that regulatory problems are casting a shadow over the deal. Finally, Ives said, Musk’s financing of the acquisition, in part by leveraging his Tesla stock, presents greater risk and uncertainty.

Musk may be trying to address financial concerns. Bloomberg reported Thursday that he is in talks to raise equity and senior financing to eliminate the need for a $6.25 billion margin loan tied to his Tesla shares. CNBC has not confirmed the report.

Ives said such a move could give “The Street more confidence that Musk won’t stay on stage if the pressure on Tesla stock becomes too much.”

Ives expects more twists and turns ahead.

“This is a soap opera,” he said. “It’s going to have a lot of different chapters.”

Internally, Twitter may be taking steps to shore up its balance sheet in case Musk steps down as inflationary pressures punish the broader tech market. The company confirmed Thursday that it is pausing most hiring and said two top executives, chief consumer officer Kayvon Beykpour and chief revenue product Bruce Falck, will leave the company.

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