Twitter shares fell a whopping 11 percent on Monday after Elon Musk said on Friday he was walking away from the $44 billion takeover offer. The stock closed at $36.81 on Friday, which was a 32 percent discount to Musk's $54.20 bid. In pre-market trade on Monday, the shares Twitter fell another 5 percent to $34.85. It ended the day's trade at $32.65 more than 40 percent lower than Elon Musk's bid price at the end of April.
Analysts are certain that Twitter share price has not found the bottom yet. Rather, a steeper plunge is coming in the days ahead if the tech billionaire does not re-negotiate a deal with the Twitter board.
According to Jefferies analyst Brent Thill, Twitter share price can nosedive to $23.5 if a deal does not happen.
"We believe that Elon Musk's intentions to terminate the merger are more based on the recent market sell-off than... Twitter's 'failure' to comply with his requests ... In the absence of a deal, we would not be surprised to see the stock find a floor at $23.5," Thill wrote in a note.
Musk is obligated to pay Twitter $1 billion in break-up fee if the he cancels the takeover offer. Twitter has said it is going to the courts to force Musk honor the deal. Legal experts believe a protracted legal fight is in the offing as Musk insists the deal breaker was the Twitter board's refusal to share the actual number of fake accounts on the platform.
Some legal experts believe that Musk might be open to renegotiating the deal at a lower price point. They also believe that the Twitter board will also accept a re-negotiated deal than no deal at all.
The way the share prices are tanking, the Twitter board is in dire straits and if Musk does indeed walk away, share prices will nosedive further.
According to Richard Windsor, who established research company Radio Free Mobile, the real reason behind Musk's offer to withdraw from the deal is his intention to renegotiate the deal. Musk had offered $54.20 price for each Twitter share two-and-a-half months ago. Twitter's share price has been falling ever since -- in tandem with the broader market initially but the selloff worsened as the deal's future became more uncertain.
Windsor says that even at the current levels, Twitter share price does not do justice to the valuations. "There is still a disconnect between the fundamentals and the share price .. .If you look at some of where the technology sector has gone over the last couple of months, you could put Twitter's valuation somewhere between $13 [billion] to $15 billion which is around about roughly 50% below even where the share price is today," he told CNBC.
If this valuation is any indicator, Musk would certainly want to walk away from the deal than honor it. And, all this clearly spells bad says ahead for Twitter share price.
Will Twitter Board Re-negotiate?
Reuters cited experts saying that Twitter could opt for a renegotiation or settlement. Under the rules in Delaware, where the fight will play out, it is not easy for acquirers to walk away from offers without suffering significant financial losses. However, corporate law experts underline the fact that companies still like to have a renegotiated deal at a lower price instead of a troublesome court battle. Another option is for the companies to accept financial compensation.
"The argument for settling at something lower is that litigation is expensive... And this thing is so messy that it might not be worth it," Adam Badawi, a law professor at UC Berkeley, told Reuters.
There is also another argument that Musk will not want to re-negotiate the deal but would be happy to pay the break-up fee of $1 billion.
According to Fortune, there are some experts who believe that Musk used the Twitter deal to sell a massive chunk of stock he owns in Tesla. They argue that the fake accounts in Twitter were not the real reason Musk walked away from the deal.
"Entire thing was a clever ruse to SELL + LIQUIDATE $8.5 BILLION of TESLA STOCK (w/plausible excuse for doing it) ... Honestly think he can 'land rockets' but can't fix 'bots'?" said Josh Wolfe, co-founder of Lux Capital, according to Fortune.
The influencer explained that the sale of Tesla stock at that point had made Musk richer by at least $7 billion even if one takes into account the possibility of him paying $1 to Twitter as a breakup fee.