‘Significant chance’ of lowered offer might come up due to the recent fall in tech stocks and Twitter’s poor performance
A US company recognized for betting against companies’ share prices has said Elon Musk could put in a lower bid for Twitter, as a result of a fall in tech stocks and a weak financial performance at the social media platform.
According to Hindenburg Research, there was a “significant chance” that Tesla’s chief executive will try to pay lower than the agreed bid price of $54.20 (£43.90) a share, which gives Twitter a $44bn valuation. The offer has already been taken by the company’s board.
Hindenburg said in a note published on May 9:
“We are supportive of Musk’s efforts to take Twitter private and see a significant chance the deal will close at a lower price.”
It said that the tech-dominated Nasdaq stock market had fallen steeply since the world’s richest person disclosed he had taken an initial stake in Twitter on April 4, suggesting a lower share price for Twitter, whose value has been maintained by the takeover situation.
Hindenburg said that if Musk pulled out, shares of the social media platform could be caught up in the negative sentiment surrounding the Nasdaq and plunge by a staggering fifty percentage points. Hindenburg also said that Twitter’s recent quarterly results had been weak and had not been priced into the stock, while Musk could pay a $1bn breakup fee to bail out of the deal.
The investment research firm also brushed off the prediction that Twitter could enforce a clause in the takeover agreement that necessitated the multibillionaire to finalize the deal. It stated:
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“Musk has incredible leverage to renegotiate should he choose to.”
Hindenburg Goes Short On Twitter Awaiting Musk Decision
Hindenburg said that it had taken a short position on Twitter. A short position is where an entity shares in a company with the hopes that the price will fall. The entity trades in those shares and then hopes to get them back at a discounted price before reinstating them to the lender – pocketing the profit.
Twitter shares slumped 2.6% at $48.50 in afternoon trading in New York. Hindenburg said the deal, as currently structured, would leave the social media platform with a huge amount of debt and would make it challenging for Musk to achieve his goal of trimming the company’s reliance on advertising. Adverts make up 90% of Twitter’s $5bn annual revenue.
The deal is being part-funded through $7.1bn which is coming from a group of investors, $27.25bn of cash, and the rest from Musk. An additional $6.25bn is in loans secured against Musk’s shares in Tesla, with $13bn issued in debt financing. The bank debt will cost Twitter around $800m-$900m in interest payments annually.
Hindenburg grew in prominence last year by taking an aggressive approach against SPACs, or special purpose acquisition companies, which are blank cheque vehicles that accumulate funds from investors first and seek businesses to buy afterward.