A short seller warns Elon Musk’s $US44bn Twitter deal faces ‘significant risk’ of getting repriced lower
Hindenburg Research says Twitter could lose 50 per cent in equity if the world’s richest person walks away from the deal.
A prominent short seller said Elon Musk’s proposal to buy Twitter for $US44bn ($A64bn) is overpriced and that there is “significant risk” that the deal could get repriced lower.
Mr Musk has offered to buy Twitter at $US54.20 a share and take the social-media company private with the intent to return to the public markets again after a few years. He recently lined up $US7bn in financing to help close the sale.
Hindenburg Research, an activist short seller, said Mr Musk’s proposal to buy Twitter has artificially inflated the company’s stock price.
Multiple developments have occurred in recent weeks that makes the firm think Mr Musk’s proposed purchase price of the company could decline from his original offer. This includes Twitter’s stock outperforming the broader market, the company’s recently disclosed quarterly results and the risk of Mr Musk walking away from the deal, the firm says.
Hindenburg said in its report that it is currently shorting Twitter, but didn’t disclose the size of its position. Short sellers borrow shares and sell them, with a plan to repurchase them at lower prices and pocket the difference.
The firm didn’t respond to a request for comment.
“As a result of these developments, we believe that if Elon Musk’s bid for Twitter disappeared tomorrow, Twitter’s equity would fall by 50 per cent from current levels,” Hindenburg Research said in a research note published Monday.
“Consequently, we see a significant risk that the deal gets repriced lower.” Twitter shares fell 3 per cent Monday afternoon. The company declined to comment.
“Interesting. Don’t forget to look on the bright side of life sometimes!,” Mr Musk said in a tweet responding to the note from Hindenburg Research. Mr Musk, the world’s richest person and chief executive of electric-car maker Tesla, has been known to publicly lash out against short sellers betting against him and his companies.
Hindenburg Research, which has targeted electric-vehicle company Nikola and other companies, noted that Twitter has recently outperformed the Nasdaq Composite since Mr Musk revealed his position in the company, implying that the stock price could fall significantly if Mr Musk walks away from the deal.
Also, Twitter recently reported disappointing quarterly earnings and disclosed it overstated its users, suggesting the company’s share price would fall further if Mr Musk’s acquisition falls through, the investment-research firm said.
Mr Musk has also indicated that he would sell his stake in Twitter if his offer to buy the company isn’t accepted, another risk for the company’s value if the sale falls apart, Hindenburg Research said. Mr Musk holds a 9.2 per cent stake in Twitter and is the company’s largest individual shareholder.
Mr Musk holds an advantage at this point, Hindenburg Research said, adding that Twitter’s board will be under pressure to accept a lower offer for the company.
“In our view, Musk holds all the cards here,” Hindenburg Research said. “The board quickly agreed to the deal when conditions were vastly more favourable. We think they’d make the right decision again when faced with the present reality.”
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