Investors speculating on whether Elon Musk’s $44 billion acquisition of Twitter Inc (TWTR.N) would be completed dropped the social media company’s shares to their lowest level since the transaction was disclosed two days ago on Wednesday.
Traders were concerned that Musk would not have enough cash on hand to fulfill his $21 billion cash commitment and might decide to sell some of his Tesla Inc (TSLA.O) shares to make up the difference.
Furthermore, Musk would just have to pay a $1 billion breakup fee – a portion of his fortune, which Forbes estimates to be $240 billion – to walk away from the transaction.
“There’s a lot of headline risk over the next six months that it takes to complete the deal,” said Chris Pultz, portfolio manager for merger arbitrage at Kellner Capital.
According to Reuters estimates, Twitter shares closed trading in New York down 2.1 percent at $48.68, a significant discount to the $54.20 transaction price, meaning a 62 percent possibility of the deal being completed. Investors believe the transaction has a minimal probability of success since Musk, who owns no other media companies, is unlikely to face antitrust investigation.
Musk may assuage market fears by releasing additional information about the source of his equity investment or bringing in partners to help split the cheque. According to some fund managers, this might add new risks to the deal based on the identities of these partners.
