Shares of Twitter Are Down as Musk Backs Out

Shares of Twitter are down about 7% this morning after Elon Musk called the merger deal off. It’s hard to say this was a huge surprise since shares of TWTR have drifted pretty far from Musk’s offer price of $52.20 per share.

Twitter plans to sue to get the deal done. I’m skeptical such a legal case can win. That is, Musk is forced to buy a company he doesn’t want even though he signed an agreement. Also, not surprisingly, shares of Tesla were up this morning.

Musk claims that Twitter hasn’t been honest about its spam and bot problem. This strikes me as a highly convenient and timely excuse. Everyone knows about Twitter’s bot problem.

I’m still a little surprised that Twitter took Musk’s offer so seriously. My guess is that their bankers told them that Twitter simply isn’t worth that much and they should eagerly take such a generous offer. It’s hard for me to disagree with that logic, except for the variable of Elon Musk.

There’s also a $1 billion termination fee in play. According to the agreement, either side would have to pay if it backed off. My guess is that Musk will eventually pay a watered-down fee to Twitter.

Adding to the drama is that Twitter will report earnings later this month. Or rather, lack thereof. No matter how you look at the issue, you can never get away from the fact that Twitter simply isn’t that profitable.

Posted by on July 11th, 2022 at 9:59 am


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