Sharing slowdown wipes out billions from Twitter as Elon Musk halts acquisition

HLon Musk’s bid to buy Twitter for $44 billion took a new turn on Friday when the outspoken billionaire said he was suspending the deal.

Shares are down more than 20 percent in pre-market trading, with some traders and analysts speculating that Mr. Musk was looking for an excuse to pull out of the takeover.

The Tesla chief initially tweeted: “Twitter deal temporarily on hold Account details back that spam/fake accounts already account for less than 5% of users.”

Two hours later he insisted, “He’s still committed to it [the] acquisition.” However, at the time of writing, shares were still down about 10%.

Wedbush analyst Dan Ives said: “Many will see this… as a way to exit this bargain in a wildly changing market. The nature of Musk creating so much uncertainty in a tweet (not recording) is very concerning to us and [Wall] Street and now they’re sending this whole deal to a circus show.”

Neil Campling of Mirabod Equity Research took a similar view. He described the tweet as “comical”, adding: “We’ve always said that Musk might cut, run or change his tune at 11:59:59 on the clock. We haven’t even come close to 11 yet.”

Mr. Musk’s tweet about the deal being paused was likely part of an effort to lower the purchase price rather than cancel the deal entirely.

The $54.20 per share offer made by Musk in April was a 38% premium to the company’s April 1 valuation, based on that day’s closing price of $39.31. Since then, Twitter’s stock price has bounced between highs of $51 and lows of $44: even those declines reflect prices that Twitter’s stock hasn’t reached in the past six months.

The billionaire businessman appears to be financially committed to the acquisition despite filings showing that he only raised a portion of the funds needed to complete the deal. Musk has already sold $8.4 billion of his Tesla stock to fund the purchase. Another $7.1 billion in cash has been pledged by backers, including Oracle chief Larry Ellison, and crypto exchange Binance, which has offered Musk $1 billion. Another $6.25 billion secured margin loan against Tesla stock, after it was halved from the original $12.5 billion promised by Morgan Stanley.

All of these announced cash commitments are less than the $44 billion required, however, the lower price may reduce the need to find more people and organizations willing to roll out the cash.

Much of the entrepreneur’s estimated net worth of $268 billion is derived from his 17 percent stake in Tesla. That company’s price has fallen by a third over the past six weeks as investors question whether Twitter will distract Musk from running the electric car maker.

Selling too many Tesla cars at once could lead to a further slide in that company’s price.

Should the deal collapse as a result of Musk’s actions, he would face a $1 billion (£818 million) termination fee, filings filed in April revealed. Analysts said that’s a lower price than an institutional investor in a similar situation would pay.

However, Musk’s frank explanation for stopping the deal may have some truth, despite commenters’ skepticism. While Twitter admits that about 5% of accounts on social media are fake, it has warned investors that it has applied “important judgment” to its latest estimates, meaning the true number could be higher. Paying a premium for a company that doesn’t have exact numbers on the threats to its current model may not be the Tesla boss’s personal taste.

First revealed by the New York Times, Musk revealed that his post-acquisition plans depend largely on advertising: He wants to increase Twitter’s revenue fivefold, to $26.4 billion by 2028, up from $5 billion last year. While ads will make up a smaller slice of the revenue pie for 2028, thanks to the goal of generating $10 billion in user subscriptions within six years, that still leaves a billion-dollar hill up. Advertising is an obvious growth target for Twitter under Mr. Musk, whether it makes up 90 percent of revenue (as it did in 2020) or 45 percent, as the proposed buyer recommends.

More fake accounts means less advertising revenue. It might be enough to make even the richest man in the world stop to think.