Musk’s Twitter Deal Is No Sure Thing

This looked like a hole you could drive the Cybertruck through, but Wall Street was rightly wary.

Elon Musk agrees to buy TWTR Twitter -0.98%

at $54.20 a share is leaving a lot of money for anyone willing to ride his coattails. Shares of the social media company are currently about 12% below the deal price. Assuming the deal closes at the end of October, the annualized return on owning the stock between now and then is about 26%. It’s the kind of merger arbitrage that one often sees when there are serious antitrust concerns or if an uncertain vote of shareholders will decide the fate of a deal.

None of that applies here and this deal is for a fixed amount of cash, not stocks. In addition, Mr. Musk is a US citizen, so a review for national security reasons is unlikely. However, before trying their luck, even amateur referees should consider who they are dealing with and read the fine print.

The merger agreement includes a reverse termination fee of $1 billion if Mr. Musk doesn’t complete the deal. Such penalties are hard to get away with a free card, especially since buyers can’t just walk away without reason. In this case, though, he could do it: Buried at the bottom of the agreement is the language of Twitter’s legal remedies. Incredibly, the potential damages are limited to the reverse termination fee.

As one veteran hedge fund manager in special situations pointed out, $1 billion isn’t a terrible amount at just 2.5% of Twitter’s value. Shares of rival social media company Meta Platforms are down 41% so far this year, Snap Inc.

more than halved and the tech-heavy Nasdaq Composite Index fell 25%. In times of risk aversion, the market can leave wide merger arbitrage, even if the buyer’s name is Blackstone, the manager explained.

And this buyer’s name is Musk. The richest person in the world on paper has been known to have changed his mind before, or worse. He mused about making Tesla private, even going so far as to claim “guaranteed financial resources” for his Twitter followers, resulting in securities fraud charges. and a penalty. He also once promised to set up a challenger to Warren Buffett’s See’s Candies, only to back down after not finding something he felt was superior.

And while $1 billion is a lot of money, even for the richest man in the world, it’s his money. There are not too many conditions to argue with him. If one assumes that at least half of Musk’s estimated 1% of his $240 billion net worth is tied to his irreverent image, that number exceeds the possible damages. His nose thumb on Wall Street is part of his identity, which includes crude mockery Securities and Markets Commission.

Mr. Musk may also realize that “fixing” Twitter will be difficult. The issues surrounding content management are complex and weighty, and he seems to have realized, based on his public comments, that the issue is more complex than just a A simple call for free speech.

To offset those risks is that Twitter has seemingly become a hero’s duty, for both Mr Musk and many of his 92 million followers on the platform. The following have given the multi-billionaire businessman the charisma of a big celebrity – something he clearly values. And note that his decision to buy Twitter comes just weeks after he publicly claimed to have given “serious thought” to building his own social media platform – a noble task. for a popular figure with many followers.

However, the question is not merely “will he or not”. There is also the risk of Mr. Musk trying to strike a better deal. That argument was made this week by Hindenburg Research, a short-selling activist betting that Twitter stock would fall. Mr. Musk reply to suggestions on — somewhere else — Twitter with what doesn’t quite rebut: “Interesting. Don’t forget to look at the bright side of life sometimes! ”

Merger arbitrageurs, who often use loan sharks to cash in on deal arbitrage, won’t be happy if a payday is inevitably ruined by the bizarre billionaire. weirdest in the world. For better or worse, this opportunity is for the amateurs.

Write letter for Spencer Jakab at and Dan Gallagher at

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