(Bloomberg) — The gap between Twitter Inc.’s stock price and what Elon Musk is offering to pay for the company has widened since the deal was announced on Monday, as merger investors fret over the billionaire’s financing plan and his commitment to complete the $44 billion transaction.
The deal spread rose to $5.09 per share by the close on Thursday after touching as much as $6.24 in early trading. On Monday, the gap was $2.50, signaling that investors are increasingly nervous about the take-private deal. The market is pricing in a roughly 80% probability of it being completed, said Aaron Glick, a merger-arb specialist at Cowen & Co.
The gross discount of Twitter’s stock price to the $54.20 all-cash offer, ending the day at roughly 10%, also moved with Twitter’s swings Thursday after the social media firm reported revenue below analysts’ expectations.
The wide spread reflects fears of negative headlines over the next few months, particularly related to financing and moves in Tesla stock, according to Frederic Boucher, a risk-arbitrage analyst at Susquehanna International Group. The volatility of Tesla shares will be important over the life of the deal, as Musk’s $12.5 billion margin loan is secured by the stock, he said. The merger arb community sees the loan as the biggest risk to the deal, Cowen’s Glick said.
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“More importantly though: it’s Elon Musk,” Boucher said. “You don’t know what he will tweet, what he will say or do. His unpredictability might be the biggest factor in the large discount to the $54.20 a share deal price.”
Susquehanna is a market maker in Twitter shares. The firm and its affiliates beneficially own 1% or more of the securities of Twitter and Telsa.
Regulators pose another potential headache. The FTC is investigating whether Musk complied with antitrust reporting requirements when he started buying Twitter shares earlier in the year prior to making his offer for the company.
The proposed transaction includes a $1 billion breakup fee for each party, which Musk will have to pay if he ends the deal or fails to deliver the acquisition funding as promised. The transaction is expected to close in 2022, pending shareholder and regulatory approvals.
(Updates deal spread, stock discount to offer and chart with closing price.)
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