Twitter’s market cap 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, U.S., May 3, 2022.

Brendan Mcdermid | Reuters

As Elon Musk seeks to take ownership of Twitter, the social media company’s shares are falling, suggesting investors fear the deal may reach the finish line.

Twitter has slipped about 12% since hitting its year-high in late April. By midday Thursday, the stock was trading at around $46, well below the $54.20 Musk had agreed to pay on April 27. The difference is about $9 billion in market value.

Although Twitter’s board has approved the purchase, the deal could still take months to close, and there’s no guarantee that will be the case. Musk would have to pay a $1 billion break fee if he chose to walk away. Tesla CEO is worth over $220 billion.

“The market has slightly less confidence that the deal will close due to regulatory challenges,” Evercore ISI analyst Mark Mahaney said in an email, adding that this was its “interpretation. very fast” of stock movement.

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

The News reported that the Federal Trade Commission is investigating the timing of Musk’s disclosure. Bloomberg later reported that the FTC was separately reviewing the acquisition itself, although many experts do not expect the deal to raise antitrust concerns.

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

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

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

Musk may be trying to solve funding issues. Bloomberg said Thursday it was in talks to raise equity and prioritize financing to eliminate the need for a $6.25 billion margin loan tied to its Tesla shares. CNBC did not confirm the report.

Ives said such a move could give “the street more confidence that Musk isn’t just walking off the stage if the pressure gets too much on Tesla’s stock.”

Ives expects more twists.

“It’s a soap opera,” he said. “It’s going to have many different chapters.”

Internally, Twitter could take steps to shore up its balance sheet in case Musk pulls out as inflationary pressures punish the broader tech market. The company confirmed on Thursday that it was suspending most hiring and said two senior executives – consumer chief Kayvon Beykpour and revenue product manager Bruce Falck – were leaving the company.

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