SAN FRANCISCO — Twitter investors appeared spooked Wednesday by the possibility that the takeover deal with Elon Musk could fall through, sending the stock price dropping well below his offer.
The CEO of electric car company Tesla has outlined his plan to buy Twitter by taking out loans from banks and financing nearly half of it with his own equity, probably from Tesla shares.
While the Twitter acquisition deal in all likelihood is still going to be completed later in 2022, two areas of doubt emerged Tuesday.
Tesla’s stock sank by 12 percent Tuesday, driving the car company‘s value down by more than $100 billion and raising questions about Musk’s ability to pay because of the roughly $30 billion hit to his net worth.
And more terms of the deal were disclosed, including a $1 billion breakup fee, which analysts say is not high enough to prevent either party from walking away.
“The Street’s starting to bet and factor in the possibility that the deal doesn’t happen and Musk walks away,” said Dan Ives, an analyst for Wedbush Securities.
Twitter’s stock was down about 3 percent by early Wednesday afternoon. Tesla, by contrast, was up Wednesday after it took a beating a day earlier. Ives said the inverse relationship between the two stocks would not prove fruitful for Musk.
Market expert Scott Sheridan, CEO of online brokerage Tastyworks, cautioned not to read too much into what one day’s stock movement could mean for the deal.
“It’s tough to say if Tesla was down so much yesterday in sympathy with the market or if the market was down in sympathy with Tesla,” he said in an email. “Either way, if this continues, it’ll throw a potential wrench in Elon’s plan to buy Twitter since he needs to sell Tesla stock to cover some of the financing.”
Musk and Twitter agreed to an acquisition deal after weeks of back-and-forth between the company and the world’s richest person. Musk first agreed to join Twitter’s board, then backed out of the position. Then he launched his hostile takeover bid for the company, which the board eventually accepted this week.
Musk has said he wants to promote free speech on Twitter, which he’s said has become a de facto town square for the world. But some critics and Twitter employees have expressed concern that Musk will roll back the safety guardrails the company has put in place to try to prevent hate speech and extremist content from spreading on the site.