When Elon Musk announced his intention to buy Twitter nearly 90 days ago, the world – and financial markets – were different.
The S&P 500 is 14% higher and has yet to enter a bear market. The war in Ukraine and inflation concerns have pushed investors into sell mode, but sentiment has not yet collapsed. And Tesla, the electric-car maker that is Musk’s main source of wealth, is about to post record profits.
The mood of Wall Street and Corporate America has changed since then. U.S. stocks just finished their worst start to the year since 1970. Tesla began laying off workers after Musk said he had a “extremely bad feeling” about the economy. The second half of the year looks uncertain.
In this context, Musk’s offer to pay $44 billion to Twitter, selling shares he doesn’t own for $54.20 a piece, seems too high — and now, nothing. surprised that he wanted to withdraw.
“The market has changed dramatically since April,” Daniel Ives, strategist at Wedbush Securities, told me.
Musk took steps late Friday to terminate his agreement to buy Twitter, claiming that the company “seriously violated multiple provisions” of the original agreement.
For weeks, Musk has expressed concern, without any clear evidence, that there are a larger number of bots and spam accounts on the platform than Twitter has publicly said. Analysts speculate that the fight is an attempt to create an excuse to get out of an already overvalued deal.
Musk’s offer represents a 54% premium to Twitter’s price before Musk started building his stake in late January and a 38% premium before his shares were disclosed in December. April.
At the start of July, Twitter stock was trading at just $38.23, down nearly 12 percent year-to-date and nearly 30 percent below Musk’s asking price.
On the radar: Twitter stock could be worse if Musk doesn’t play his game. Investors are abandoning fast-growing tech stocks – which become less attractive as interest rates rise – and social media companies have been hit hard.
Facebook’s meta has seen its stock drop nearly 50% year-to-date. Snapchat is 68% lower.
Then there’s Tesla stock, which Musk plans to rely in part on to finance the deal. It also plummeted, plummeting 30% since the beginning of April.
“The Twitter fiasco took a toll on Tesla stock, and that’s Musk’s golden son,” Ives said.
Musk doesn’t call his fickle buyer regret. But I think that’s clearly a major factor.
What’s Next: The stage is set for a lengthy and dramatic legal battle. Twitter says it intends to force Musk to close the sale — and it’s not hard to see why. Shares of Twitter fell more than 5% in pre-market trading on Monday. With the takeover bound in court, Ives thinks it could drop another 30% to $25.
