Twitter's stock price would plummet by 37%

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12 May 2022
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According to a short-seller, Elon Musk's proposed purchase of Twitter would have a 37 percent negative impact on the stock's value.

A short-seller indicated Monday that Twitter's implied price would be 37 percent lower if Elon Musk had not made a bid.

There is a possibility that the planned acquisition will be re-priced lower since Tesla's CEO has all of the power.

It's possible that Elon Musk would reassess his offer for Twitter to properly reflect the risks associated with Twitter's stock and the market at large.

As a result of a 17.6% drop in the Nasdaq since April 14, the agreement is in jeopardy in its existing shape.

Taking Twitter private for $54.20 per share was mutually agreed upon by Tesla CEO Elon Musk and Twitter's board of directors.

The analysts at Hindenburg estimate that Twitter's stock price would be approximately $31.40 if Musk's offer had not been made, a decrease of nearly 37% from Friday's closing price.

As the article points out, Twitter has outperformed the Nasdaq by 43% since Musk announced his first ownership, putting the company up for a big negative reversal should Musk walk away from the transaction.

The analysts emphasized the fact that Twitter's lackluster first-quarter results and overblown user base signal more damage that hasn't yet been factored in should Musk step away.

"We suspect that Twitter continues to overstate its true-daily active users, despite the revision," the Hindenburg Research report said. "As indicated by Musk, the platform is flooded with bots, spam, and scam accounts that likely inflate its genuine user metrics even further." said the report.


They said that breakup fees, which experts predict might cost Musk $1 billion, are looming. 

This adds to the possibility of Musk selling his 9.2 percent interest in the company if the sale fails.

"Given the above collective dynamic, Musk has incredible leverage to renegotiate should he choose to," the authors wrote.
"The board retains almost no investment" in Twitter, which means it stands to gain from a transaction even if it's valued lower.
"Any party rolling (or contributing) equity would prefer a lower price with lower commensurate debt, given that their equity stake will remain static regardless," the analysts wrote.


Because Tesla has committed 88 million shares as security for loans, the transaction is under excessive pressure. Still, experts say the board will likely accept a lower price because of current conditions.

"In our view, Musk holds all the cards here," the analysts concluded. "We agree with Elon Musk that Twitter has become the de facto public square. We also agree that the pressures of being a public company make it harder to advance the mission of Twitter serving as an open, trusted forum for diverse ideas."


As of 1:00 p.m. ET, Twitter's stock traded at around $48.81 per share.

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