Traders fretted Musk may not have enough money sitting around to fund his $US21 billion cash contribution and could decide against selling some of his Tesla shares to come up with it.
He has backtracked before. Earlier this month, Musk decided at the last minute not to take up a seat on Twitter’s board, while in 2018, he tweeted there was “funding secured” for a $US72 billion deal to take Tesla private, but did not move ahead with an offer.
In addition, Musk would have to pay only a $US1 billion break-up fee – a sliver of his fortune estimated by Forbes to be $US240 billion – to walk away from the acquisition.
“There’s a lot of headline risk over the next six months that it takes to complete the deal,” Chris Pultz, portfolio manager for merger arbitrage at Kellner Capital, said.
Twitter shares ended trading in New York down 2.1 per cent at $US48.68, a big discount to the $US54.20 deal price, implying a 62 per cent chance of the deal being completed, according to Reuters calculations.
That is a relatively low chance of deal completion, investors said, given it is unlikely Musk, who has no other media holdings, would face antitrust scrutiny.
Tesla shares fell more than 12 per cent on Tuesday, wiping out $US126 billion in value, amid concerns Musk will have to sell shares in the electric car maker to pay for the $US21 billion equity cheque in the Twitter deal.
Musk could calm some of the market jitters by providing more details on the source of his equity financing, or bring in partners to help split the bill.
However, this could introduce new risks to the deal based on the identity of these partners, some fund managers said.
Roy Behren, managing member of Westchester Capital Management, said the $US1 billion deal termination fee was not high enough to make Musk think twice about walking away from the deal.
“In the context of his net worth, and the size of the transaction, the fee is smaller than one would have expected,” Behren said.
Meanwhile, Musk continues to publicly criticise Twitter’s executives – despite the terms of the acquisition deal stating his tweets must not “disparage the Company or any of its Representatives”.
Musk took aim at Twitter’s chief legal officer Vijaya Gadde on two separate occasions on Wednesday.
what's going on? You're making an executive at the company you just bought the target of harassment and threats.
— dick costolo (@dickc) April 27, 2022
Musk also responded to a tweet which was critical of Gadde to say, “suspending the Twitter account of a major news organization for publishing a truthful story was obviously incredibly inappropriate”.
The tweet is an apparent reference to a decision from Twitter last year to temporarily suspend the New York Post’s account after the newspaper published allegations concerning corrupt conduct by Hunter Biden, son of US President Joe Biden.
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