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Tesla CEO Elon Musk is currently seeking to acquire Twitter, but as investors worry that the transaction will not be completed, Twitter’s stock price is falling. Shares of Twitter have fallen nearly 13% since hitting a year high in late April. As of Thursday’s close, Twitter’s stock was trading at $45.08, well below Musk’s April 27 offer price of $54.20 per share. This difference equates to more than $9 billion in market capitalization.
Although Twitter’s board approved the acquisition, the deal could still take several months to close, and there’s no guarantee of success. If Musk chooses to walk away from the acquisition, it will have to pay a $1 billion deal break fee. Musk is currently worth more than $220 billion.
Evercore ISI analyst Mark Mahaney believes that “the market’s confidence in the successful completion of the transaction has decreased slightly due to the regulatory challenges.” He said that this is his “quick reading” of Twitter’s stock price movement.
Additionally, before Musk offered to buy Twitter outright, he acquired a 9% stake in Twitter, but did not disclose his holdings within 10 days, as mandated by the U.S. Securities and Exchange Commission (SEC).
According to media reports, the US Federal Trade Commission (FTC) is investigating the timing of Musk’s disclosure of this information. There are also reports that the FTC is conducting a separate investigation into the deal itself, although many experts do not expect the deal to raise antitrust concerns.
The FTC did not disclose the status of the ongoing investigation, and an FTC spokesman has yet to respond. Wedbush Securities analyst Dan Ives estimates that Musk has a more than 90% chance of closing the deal, but he sees three factors weighing on Twitter’s stock price.
For one, if Twitter were still a public company, the stock would probably only be in the $20s. Second, regulatory issues clouded the success of the deal. In the end, Musk’s funding for the acquisition came in part from his Tesla stock holdings, which brings greater risk and uncertainty.
Musk may be grappling with funding concerns. It was reported on Thursday that he was in talks to raise equity, which would eliminate the need for a $6.25 billion margin loan with his Tesla stock. Ives said the move “may give Wall Street more confidence that Musk won’t give up because Tesla’s stock price is under too much pressure.”
However, he also expects that the deal may have more twists and turns in the future. “It’s a series that will have many chapters,” he said.
Twitter may also be taking steps internally to strengthen its balance sheet in case Musk pulls out of the deal suddenly and inflationary pressures take a bigger toll on the tech company. The company confirmed on Thursday that it had put most of its hiring on hold, while two executives, including consumer head Kayvon Beykpour and revenue product head Bruce Falck, will The company leaves.
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