Will Musk try to re-cut Twitter deal?


Twitter is one of the few biggish tech stocks not to puke this year, thanks to Elon Musk’s $54.20-a-share bid for the company. Nathan Anderson is wagering this won’t last.

The founder of short seller Hindenburg Research thinks Musk can clearly do a deal at that price, but questions why he should, given the newsflow since Tesla’s founder chief executive first made his gambit a month ago.

Twitter is trading at about a 10 per cent discount to the price proposed by Musk, and agreed to by company’s board, indicating that there is some residual fear the deal could still collapse. Let’s call it the Elon Risk Discount.

That may be peanuts though. If Musk swallows the cost of the hardly insurmountable $1bn break fee and walks away, Twitter’s shares would collapse by about 50 per cent, Hindenburg argues.

The full rationale for the short position is here. It mostly boils down to the fact that the Nasdaq has sold off hard over the past month, which alone implies a no-deal stock price of $31.40 according to the short seller.

Layer on top of that, 1) Musk has said he would dump his 9 per cent stake if he cannot close the deal, and, 2) since the bid, Twitter reported weak earnings and overstated audience figures. Everything is in place for a pretty epic collapse — if Musk changes his mind or tries to re-cut the deal.

Renegotiation seems to be Hindenburg’s main scenario.

In our view, Musk holds all the cards here. The board quickly agreed to the deal when conditions were vastly more favourable, and we think they’d make the right decision again when faced with the present reality.

. . . Overall, we are supportive of Musk’s efforts to take Twitter private and see a significant chance the deal will close at a lower price.

FTAV is unsure of what to make of this. Musk is no Carl Icahn, who famously never saw a deal that he didn’t want to wrangle into a better one. Would Musk truly want to go through the financial storm, the legal battles, the extensive press, the regulatory scrutiny, the sheer drama that would ensue if . . . 

. . . hang on, of course he would.

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