A U.S. company known for betting on company stock prices said Elon Musk could submit a lower bid for Twitter, due to falling technology stocks and poor financial performance on the social media platform.
Hindenburg Research said there was a “significant chance” that Tesla’s CEO would seek to pay less than the agreed-upon bid of $ 54.20 (£ 43.90) per share, which Twitter estimates at $ 44 billion and accepted by the company’s board.
“We support Musk’s efforts to make Twitter private and we see a significant chance that the deal will be concluded at a lower cost,” Hindenburg said in a note released Monday.
It says the technology-dominated Nasdaq stock market has plummeted since the world’s richest man revealed he took over Twitter’s initial stake on April 4, implying a lower share price on the social media platform, whose value was retained by the takeover. Hindenburg said that if Musk left, Twitter shares could be caught in negative sentiment around Nasdaq and fall by 50%.
Hindenburg added that Twitter’s recent quarterly results were poor and were not included in the shares, while Musk could pay a billion-dollar fee to withdraw from the deal. The investment research firm has also dismissed speculation that Twitter could implement a clause in the takeover agreement that requires the multibillionaire to complete the deal.
“Musk has incredible power to renegotiate if he decides to do so,” said Hindenburg, who said he took a short position on Twitter. A short position is when an entity borrows shares of an enterprise in anticipation that the price will fall. The entity sells those shares and then expects to repurchase them at a lower price before returning them to the lender – keeping the profit in its pocket.
Shares on Twitter fell 2.6% to $ 48.50 in afternoon trading in New York.
Hindenburg said the agreement as structured would leave Twitter with a large amount of debt and make it harder for Musk to achieve the goal of reducing the company’s reliance on advertising. Ads make up 90% of Twitter’s $ 5 billion in annual revenue.
The deal is partly funded through $ 27.25 billion in cash, of which $ 7.1 billion comes from a group of investors and the rest from Musk. A further $ 6.25 billion are loans secured by Musk shares in Tesla, and $ 13 billion is secured to finance the debt. Bank debt will cost Twitter about $ 800 million to $ 900 million a year in interest payments.
Hindenburg became famous last year by taking an aggressive stance against special purpose vehicles or Spacs, which are vehicles with blank checks that first raise money from investors and then look for companies to buy.