When Elon Musk announced his intention to buy Twitter (TWTR) nearly 90 days ago, the world – and financial markets – looked different. The S&P 500 was 14% higher and had not yet entered a bear market. The war in Ukraine and inflation concerns pushed investors into sell mode, but sentiment did not collapse. And Tesla, the electric car maker that is Musk’s main source of wealth, was on the verge of announcing record profits.
The mood of Wall Street and Corporate America has changed since then. US stocks ended their worst start to the year since 1970. Tesla began laying off workers after Musk indicated he had a “super bad feeling” about the economy. The second half of the year looks uncertain at best.
In that climate, Musk’s offer to pay $44 billion for Twitter, raking in the shares he doesn’t own for $54.20 each, seems too high — and now, unsurprisingly, he wants to go out .
“The market has changed dramatically since April,” Daniel Ives, a strategist at Wedbush Securities, told me. .
For weeks, Musk has expressed concern, with no apparent evidence, that there are more bots and spam accounts on the platform than Twitter has publicly said. Analysts speculated that the fight was an attempt to create a pretext to exit a deal that now seemed overpriced.
Musk’s offer represented a 54% premium to Twitter’s price before Musk began increasing his stake in late January, and a 38% premium before his holdings were revealed in April. were trading at just $38.23, down nearly 12% from the start of the year and nearly 30% below Musk’s offer price.
Twitter shares would likely be worse if Musk hadn’t made his move. Investors are abandoning fast-growing tech stocks – which are less attractive when interest rates are rising – and social media companies have been hit hard. Facebook’s Target saw its stock drop nearly 50% year-to-date. Snapchat is 68% smaller.
Then there’s Tesla (TSLA) stock, which Musk planned to rely on in part to fund the deal. It also dropped sharply, down 30% since the beginning of April.
“The Twitter fiasco had a big impact on Tesla’s stock and this is Musk’s golden son“, Ives said. Musk isn’t calling his fickle buyer’s remorse. But Ives is clear that this was an important factor.
Ultimately, the stage is set for a long and dramatic legal battle. Twitter said it intends to force Musk to close the sale – and it’s not hard to see why. Twitter shares were down more than 5% in premarket trading on Monday. With the acquisition tied in court, Ives thinks it could drop another 30% to $25.
This article is a translation of the writing by Julia Horowitz to the website CNN Business.
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