The market doubts the success of Musk’s takeover bid on Twitter

the market doubts the success of musk's takeover bid on twitter
the market doubts the success of musk's takeover bid on twitter

Despite already having an agreement with the Twitter board, the market continues to question Elon Musk’s determination to take over the social network. The company’s shares are still below the $54.2 per share offered by the tycoon. The stock market punishment has also been extended to Tesla, which has lost a billion dollars of capitalization.

Wall Street seems to still think that Elon Musk is a barking dog, but not so biting. His main misgiving is how he will manage to pay the 44,000 million that the company values. It is usual that in takeover bids, once the market digests an offer, the company’s share price quickly adjusts to the price that the buyer offers. In some cases, when the market anticipates a takeover bid war or an improvement in price, the shares of the offered company even exceed the amount offered.

In the case of Twitter, shares have risen 26% since Musk began his offensive on the company in early April, acquiring 9% of the capital. Its price, however, is 10% of the amount offered by the tycoon. First, the market feared that the hostilities of the council, which threatened to activate the poison pills to ruin the offer, would end up ruining the takeover bid. But not even after the pact between the company and Musk have they reached the price of the takeover bid, but they are around 48 dollars, falling more than 3%.

But the market has also punished Tesla. On Tuesday its titles plummeted 12%, but recover more than 2%. Investors fear that Musk will collect the 21,000 million that he has promised to contribute with the sale of a part of his shares. The tycoon has 20% of the capital, valued at less than 200,000 million dollars, but the problem is that much of it is pledged.

The agreement reached between Musk and the banks goes through 13,000 million in debt that will hang from Twitter itself and another 12,500 million guaranteed by a part of its own Tesla shares, which it will only be able to dispose of under certain conditions. In other words, the financial entities can take those securities from Musk if he does not pay the credits.

With current prices, Musk could sell the Tesla shares needed to buy Twitter and still have securities valued at 11,000 million on which no commitment to banks weighs. But if the stock falls below $740, as it did in February, he would need special authorization from the bank to sell some of those shares. Or explore an alternative solution, such as partnering with a venture capital fund, selling some of your unlisted companies or your cryptocurrencies.

In the event that, as one part of the market fears, Musk’s ordeal to take over Twitter ends up in shambles –because the tycoon does not get the money or because the Twitter board rejects the operation– the parties have committed to compensate the other with 1,000 million dollars.

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Brian Adam
Professional Blogger, V logger, traveler and explorer of new horizons.