Investors worry about Musk’s potential turnaround in Twitter’s $44 billion buyout 2022-04-27 17:12:00


Elon Musk’s Twitter account on a smartphone is seen in front of the Twitter logo in this illustration taken, April 15, 2022. REUTERS / Dado Ruvic / Illustration

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(Reuters) – Investors are speculating on whether Elon Musk will complete its $44 billion acquisition of Twitter (TWTR.N) Shares of the social media company sent Wednesday to their lowest level since the deal was announced two days ago.

Traders are concerned that Musk may not have enough money to fund his $21 billion cash contribution and could decide not to sell some of his Tesla Inc. (TSLA.O) shares put up.

I’ve backtracked before. Earlier this month, he decided at the last minute not to take a seat on Twitter’s board of directors. In 2018, Musk wrote on Twitter that there was “secured funding” for a $72 billion deal to take Tesla private, but he did not go ahead with an offer. Read more

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In addition, Musk will only have to pay $1 billion in breakup fees — a portion of his fortune that Forbes estimates to be $240 billion — to walk away from the acquisition.

“There are a lot of key risks over the next six months that it would take to get the deal done,” said Chris Boltz, portfolio manager for merger arbitrage at Kellner Capital.

Musk’s representatives did not immediately respond to requests for comment.

Twitter shares ended trading in New York down 2.1% at $48.68, a huge discount to the deal price of $54.20, indicating a 62% probability of closing the deal, according to Reuters calculations. Investors said this is a relatively low chance of a deal closing, given that Musk, who does not own other media outlets, is unlikely to face antitrust scrutiny.

Tesla shares fell more than 12% on Tuesday, wiping out $126 billion in value, amid fears that Musk will be forced to sell shares in the electric car maker to pay a check for $21 billion in a Twitter deal. Read more

Musk could calm some of the market’s jitters by providing more details about the source of the equity funding or bringing in partners to help split the check. Some fund managers said this, however, could introduce new risks to the deal based on who these partners are.

Roy Behren, managing director at Westchester Capital Management, which has $5.4 billion in assets under management, said the $1 billion deal-breaking fee isn’t high enough to make Musk think twice before walking away from the deal.

“In the context of his net worth and deal size, the fees are lower than one would have expected,” Bahrin said.

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(Reporting by Anirban Sen in Bengaluru Editing by Greg Rumiliotis and Matthew Lewis

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