Why you can still buy Twitter shares below Musk’s buyout price

Posted: 27 April 2022 1:27 pm
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Investors are discounting the risks to Twitter’s buyout by Elon Musk and the legal hurdles that lie ahead, sending shares slumping instead of climbing.

Twitter (TWTR) agreed to accept Elon Musk’s buyout offer at $54.20 a share but the stock continues to trade below that price tag. Here are a few theories why.

1. There’s risk Musk or Twitter will pull back

Investors often discount risks when buying or selling shares. In Twitter’s case, the stock hasn’t traded at or above the price that Musk agreed to pay for the social media giant as the market weighs the odds that the deal may not be completed. Afterall, there’s never a 100% guarantee.
The deal between Twitter and Elon Musk restricts the social media giant from shopping around for a better offer, according to the company’s filing with the Securities and Exchange Commission. That leaves open the risk that the sale won’t be completed, which is why the agreement between the two provides for a termination fee. If Twitter walks away to accept a superior proposal from another buyer, the social media giant will need to pay Musk $1 billion. The billionaire is also required to pay the same amount to the company should he fail to meet closing conditions for the buyout.

2. Shareholders and regulators can still weigh in

There is little doubt that the richest person in the world has the resources to close the Twitter purchase. But with Musk’s cash and liquid assets estimated by Bloomberg to be just about $3 billion, there are speculations he could be pursuing talks with potential co-investors to meet the $21 billion in equity commitment he needs to pay the $44 billion price tag for the social media giant.
Once he secures that, he needs to win a shareholder vote to push the deal through. And then, he’ll need clearance from antitrust and foreign investment laws in the US and other countries where Twitter operates. The New York Times reported that the deal probably won’t elicit objections from the Department of Justice and the Federal Trade Commission, given that Musk’s two major holdings – electric carmaker Tesla (TSLA) and rocket company SpaceX – don’t compete with Twitter.
“And it’s hard to see how Twitter has much to do with either one of them,” the newspaper quoted former Federal Trade Commission Chair William Kovacic as saying.
For a 5-year view of the performance of Twitter stock, see the graph in our dedicated guide.”

3. Political hurdles await in Washington, Europe

Still, it’s difficult to ignore the fact that the deal has attracted the attention of officials in the White House and European Union. Whether they would derail the transaction is another worry for investors. Afterall, Musk and US President Joe Biden were never known to be the best of friends. Last week, when Musk announced his offer to buy Twitter, he said he invested in the company because he believed in its “potential to be the platform for free speech around the globe, and I believe free speech is a societal imperative for a functioning democracy.”
CNBC reported that White House officials and Democratic strategists are closely watching the deal, worried that Musk would allow former President Donald Trump to return to Twitter. They’re also concerned that misinformation could rise on the social media platform under Musk’s leadership ahead of the 2024 presidential election that could see a rematch between Trump and Biden, CNBC said. While White House Secretary Jen Psaki declined to comment on the deal when asked during a press conference, she said “No matter who owns or runs Twitter, the President has long been concerned about the power of large social media platforms.” Nervous about the prospects of your Twitter shares? See our guide to other ways to profit from a falling stock price. And then there are concerns on the other side of the Atlantic that Musk needs to face about his takeover of Twitter. AP reported that Musk’s plans for Twitter could clash with Europe’s new tech laws. If the billionaire’s approach to the social media will be “just stop moderating it, he will likely find himself in a lot of legal trouble in the EU,” AP quoted Jan Penfrat, a senior policy adviser at digital rights group EDRi, as saying. European Commissioner for Internal Market Thierry Breton reminded Musk in a tweet that any company operating in Europe, be it cars or social media, needs to comply with the rules, “regardless of their shareholding.” And lastly, there’s the selloff in the wider stock market that makes it even harder for Twitter to fight a slump. The company is included in many indices tracked by a number of mutual funds and exchange traded-funds. That means when investors pull out money in such funds, they are also selling Twitter shares, without giving much thought to it.

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