Twitter’s share price reflects jangled nerves. Since Elon Musk agreed to honour his deal to buy the company the price has risen 10 per cent. Yet it still trades a tenth below the price Musk offered and which Twitter has (again) accepted.
Caution is understandable. The pair were due to go to court but now have until October 28 to close the acquisition. Mud slinging continues. Twitter has accused Musk of buying more time to cause mischief.
In reality, Musk has little room for manoeuvre. He claims the deal is contingent on receipts from debt financing — the $13bn financing package agreed when the takeover was first announced in April. Since then, the S&P 500 has fallen 17 per cent. As US interest rates have risen, the US 10 year benchmark Treasury yield has increased by more than 100 basis points.
For banks, marketing this debt to other investors will be more difficult. But that is not a reason for the debt commitment to be terminated. Nor is the fact that Musk must once again convince equity co-investors to put up the $7.1bn they agreed to after the deal was announced.
Both sides know Twitter is a weaker company than it was in April. While stuck in deal limbo, the company has thrown a lot of ideas at the wall. The latest is an edit button rolled out to subscribers in the US, Canada, New Zealand and Australia.
None has made much difference to performance. User numbers have reached 237.8mn, up 17 per cent from the same period a year earlier. But of course 5 per cent — some 12mn — are likely to be fake according to Twitter’s own estimates. Revenue growth this year is expected to be just 4.5 per cent. The company blames the Musk melodrama for putting off advertisers but it is subject to the same pullback in digital advertising that has affected Meta and YouTube. The company is also feeling the effects of its failure to diversify. Advertising accounts for over 90 per cent of revenue.
Twitter’s share price has held up better than rivals because it is anchored to Musk’s $54.20 offer price. The price was agreed when the market was in far better shape. Once the deal closes there is no reason to expect Twitter’s intrinsic value to remain there.
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