Due to a drop in tech equities and a poor financial performance at the social media site, Elon Musk could submit a lesser bid for Twitter, according to a US business notorious for betting against companies’ share values.
According to Hindenburg Research, there is a “significant likelihood” that Elon Musk may try to pay less than the negotiated purchase price of $54.20 (£43.90) per share, which values Twitter at $44 billion and has been approved by the board of directors.
According to a note published on Monday, Hindenburg stated, “We support Musk’s attempts to take Twitter private and see a significant possibility the purchase will close at a lower price.”
It stated the tech-dominated Nasdaq stock market has dropped considerably since the world’s wealthiest person announced on 4 April that he had taken an initial position in Twitter, signaling a reduced share price for the social media platform, whose value has been held up by the takeover situation. According to Hindenburg, if Musk leaves, Twitter’s stock might be dragged down by the Nasdaq’s unfavorable sentiment and plunge by 50%.
Hindenburg went on to say that Twitter’s recent quarterly performance were weak and had not been priced into the stock, and that Musk might walk away from the transaction for a $1 billion breakup fee. The financial research firm also ruled out the possibility of Twitter enforcing a condition in the takeover agreement requiring the multibillionaire to resign.
“If Musk chooses to renegotiate, he has great leverage,” said Hindenburg, which said it had taken a short position on Twitter. A short position is when an entity borrows shares in a firm in the hopes of a price drop. The entity sells the shares and then plans to repurchase them at a reduced price before returning them to the lender and pocketing the profit.
In afternoon trade in New York, Twitter shares slipped 2.6 percent to $48.50.
According to Hindenburg, the deal’s current structure would leave Twitter heavily in debt, making Musk’s objective of reducing the company’s reliance on advertising more difficult to execute. 90 percent of Twitter’s $5 billion in annual revenue comes from advertisements.