When Elon Musk announced his intention to buy Twitter almost 90 days ago, the world and financial markets looked different.
The S&P 500 was 14% higher and had not yet entered a bear market. The war in Ukraine and inflation concerns had sent investors into sell mode, but sentiment did not collapse. And Tesla, the electric car maker that is the main source of Musk’s wealth, was about to announce record earnings.
Since then, the mood on Wall Street and Corporate America has changed. US stocks just closed off their worst start to the year since 1970. Tesla began laying off workers after Musk indicated he had a “super bad feeling” about the economy. The second half of the year looks uncertain at best.
In that environment, Musk’s offer to pay $44 billion for Twitter, snapping up the shares he doesn’t own at $54.20 apiece, seems too high — and now, not surprisingly, he wants out.
“The market has changed dramatically since April,” Daniel Ives, strategist at Wedbush Securities, told me.
Musk took steps late Friday to end his deal to buy Twitter, claiming the company was “in material breach of multiple provisions” of the original agreement.
For weeks, Musk has expressed concern, with no visible evidence, that there are more bots and spam accounts on the platform than Twitter has publicly said. Analysts speculated that the fight was an attempt to create a pretext to exit a deal that now appears overpriced.
Musk’s offer represented a 54% premium over Twitter’s price before Musk began building up his stake in late January, and a 38% premium before his holdings were disclosed in April.
In early July, Twitter shares were trading at just $38.23, down nearly 12 percent year-to-date and nearly 30 percent below Musk’s bid price.
On the radar: Twitter shares probably would have fared much worse if Musk hadn’t made his play. Investors shunned fast-growing tech stocks — which are less attractive when interest rates rise — and social media companies were hit hard.
Shares of Facebook’s Meta have tumbled nearly 50% since the start of the year. Snapchat is 68 percent lower.
Then there’s Tesla stock, which Musk planned to rely on in part to finance the deal. It has also declined sharply, falling 30 percent since early April.
“The Twitter fiasco had a big impact on Tesla stock, and it’s Musk’s golden child,” Ives said.
Musk doesn’t call his fickleness buyer’s remorse. But Ives thinks it’s clear it’s a major factor.
What happens next: The stage is set for a long and dramatic legal battle. Twitter has said it intends to force Musk to end the sale — and it’s not hard to see why. Shares of Twitter were down more than 5 percent in premarket trading on Monday. Once the acquisition is tied up in court, Ives believes it could fall another 30 percent to $25.
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