As Tech Shares Plunge, Elon Musk May Seek Lower Price For Twitter Deal
Twitter Inc. shares have plunged to their lowest level since the social media company agreed to sell itself to Elon Musk for $44 billion on April 25, raising questions over whether the world's richest person will try to renegotiate the deal, Greg Roumeliotis reported for Reuters.
Photo Insert: Musk is contractually obligated to pay a $1 billion breakup fee, but Twitter would have to sue to get more than that in damages or try to force him to complete the deal.
On Tuesday, the implied probability of the deal closing at the agreed price fell below 50% for the first time, when Twitter shares dropped below $46.75. That is halfway between the deal price and the price of the shares before Musk revealed he had amassed a stake in the social media company on April 4.
The shares closed at $47.26, giving Twitter a market value of $36 billion. News that Musk would lift a ban on ex-President Donald Trump's Twitter account, while significant politically, did not move the stock. Twitter shares have plunged along with the wider collapse in technology stocks.
Some investors, like short-seller Hindenburg Research, have surmised Musk would try to negotiate a lower price. Musk has not shown he is planning to reopen negotiations and his representatives have declined comment. He said he had made a final offer for Twitter sans due diligence and reneging on his offer could push Twitter to collect a $1-billion break-up fee.
Musk has an estimated net worth of almost $240 billion according to Forbes, yet most of his wealth is tied up in Tesla shares. He has already moved to raise some cash to fund the deal by selling $8.5 billion worth of Tesla shares and took out a $12.5 billion margin loan secured against his Tesla stock.
Musk cut that margin loan to $6.25 billion after bringing in co-investors. Musk said in a regulatory filing he may seek more funding. While Musk has said he does not care about the economics of buying Twitter, some investors think the 27% drop in Tesla shares since he revealed his stake is driven partly by concerns he may have to sell more shares.
Therefore, Tesla's stock would be under less pressure if Musk can negotiate a lower acquisition price. Musk can threaten to walk away from the deal unless Twitter's board agrees to reopen negotiations.
He is contractually obligated to pay a $1 billion breakup fee, but Twitter would have to sue to get more than that in damages or try to force Musk to complete the deal.
There is plenty of precedent for a renegotiation. Several companies repriced agreed acquisitions when the COVID-19 pandemic broke out in 2020 and delivered a global economic shock. In one instance, French retailer LVMH threatened to walk away from a deal with Tiffany & Co.
The US jewelry retailer agreed to lower the acquisition price by $425 million to $15.8 billion. Simon Property Group Inc., the biggest U.S. mall operator, managed to cut its purchase price of a controlling stake in rival Taubman Centers Inc. by 18% to $2.65 billion.