4 ms·

You're assuming that the deal will definitely close. The deal can still fall apart for a number of reasons. The risk of this happening is far from remote. This

You're assuming that the deal will definitely close. The deal can still fall apart for a number of reasons. The risk of this happening is far from remote. This is evident from the current stock price of about $46, which is significantly lower than the $54.20 Musk is offering.

boringg 4y ago
Only reason twitter hasn't tanked is people holding on hoping this deal goes through otherwise it would have dropped significantly with the rest of the tech index. My point is that its market cap is artificially overvalued currently on hopes that elon buys at 54$ (which i doubt he will)
- ckastner 4y ago
  I too believe that he'd be crazy not to renegotiate. As far as I recall, they agreed on a break fee of ~$1bn if Musk walks away. But if he can lower the price to $40 a share (which is still far higher than market would probably be, at least in this market), he gets Twitter at $31bn instead of $42bn.
  - boringg 4y ago
    Painful break fee - worth it in current market conditions though his equity hes putting up will have been reevaluated downwards too.
KennyBlanken 4y ago
Yep. Aside from Musk having the attention span of a 6 month old puppy: the margin loan requires Tesla's stock drop less than 40%, otherwise he has to personally bankroll the Twitter purchase. Right now it's down 26% this month, more than twice the general market drop, and shows no sign of slowing. Musk has already started trying to ditch the margin loan.
BbzzbB 4y ago
These mergers never are almost never at parity months before closing. This one isn't even so far a spread, 15% rebate on proposed takeout price. Activision, with an offer from Microsoft for which even Buffett is partaking in the arbitrage, sits at 20%. Even back at the announcement in January, before this market turmoil which can threaten these deals, it traded at a like 14% discount. With that in mind, special situations are clearly still a valid strategy.
- thaway2839 4y ago
  And that's because a lot of such mergers/buyouts fail. That's why the price is never on parity. Putting everything on hold until the merger closes is a severe dereliction of duty.
  - BbzzbB 4y ago
    Indeed, there's no such thing as free money. You get payed (or burned) when trading on these mergers for bearing the risk of the deal failing or renegotiating.
- throwaway92394 4y ago
  If the market was highly/certainly confident the deal was going to go through it would be at ~54.20$ or higher (technically, although not likely much higher). If you're 100% sure the deal goes through then that's essentially a free 6$ per share guaranteed right now.
  - c-fe 4y ago
    Out of interest, why higher? Twitter does not pay dividends, and if you discount it to today, the 54,20$ in the future are worth less than 54,20$ today since no interest is paid on these shares? Even when i take inflation into account, the 54,20 have more buying power now than in the future so again I dont see why you would pay more.
    - throwaway92394 4y ago
shrimpx 4y ago
And the only reason it’s $46 and not lower is that people are staying in the stock waiting for the Musk 15-20% payout. When it becomes clear that Musk isn’t buying Twitter, Twitter stock will implode instantly.

boringg 4y ago

Only reason twitter hasn't tanked is people holding on hoping this deal goes through otherwise it would have dropped significantly with the rest of the tech index. My point is that its market cap is artificially overvalued currently on hopes that elon buys at 54$ (which i doubt he will)

ckastner 4y ago
I too believe that he'd be crazy not to renegotiate. As far as I recall, they agreed on a break fee of ~$1bn if Musk walks away. But if he can lower the price to $40 a share (which is still far higher than market would probably be, at least in this market), he gets Twitter at $31bn instead of $42bn.
- boringg 4y ago
  Painful break fee - worth it in current market conditions though his equity hes putting up will have been reevaluated downwards too.

KennyBlanken 4y ago

Yep. Aside from Musk having the attention span of a 6 month old puppy: the margin loan requires Tesla's stock drop less than 40%, otherwise he has to personally bankroll the Twitter purchase. Right now it's down 26% this month, more than twice the general market drop, and shows no sign of slowing. Musk has already started trying to ditch the margin loan.

BbzzbB 4y ago

These mergers never are almost never at parity months before closing. This one isn't even so far a spread, 15% rebate on proposed takeout price. Activision, with an offer from Microsoft for which even Buffett is partaking in the arbitrage, sits at 20%. Even back at the announcement in January, before this market turmoil which can threaten these deals, it traded at a like 14% discount. With that in mind, special situations are clearly still a valid strategy.

thaway2839 4y ago
And that's because a lot of such mergers/buyouts fail. That's why the price is never on parity. Putting everything on hold until the merger closes is a severe dereliction of duty.
- BbzzbB 4y ago
  Indeed, there's no such thing as free money. You get payed (or burned) when trading on these mergers for bearing the risk of the deal failing or renegotiating.
throwaway92394 4y ago
If the market was highly/certainly confident the deal was going to go through it would be at ~54.20$ or higher (technically, although not likely much higher). If you're 100% sure the deal goes through then that's essentially a free 6$ per share guaranteed right now.
- c-fe 4y ago
  Out of interest, why higher? Twitter does not pay dividends, and if you discount it to today, the 54,20$ in the future are worth less than 54,20$ today since no interest is paid on these shares? Even when i take inflation into account, the 54,20 have more buying power now than in the future so again I dont see why you would pay more.
  - throwaway92394 4y ago

shrimpx 4y ago

And the only reason it’s $46 and not lower is that people are staying in the stock waiting for the Musk 15-20% payout. When it becomes clear that Musk isn’t buying Twitter, Twitter stock will implode instantly.