Yesterday, Twitter’s board of directors just announced that it agreed to sell the company to Musk for $44 billion. The next day, Tesla’s market value evaporated by hundreds of billions.

On Tuesday, the three major U.S. stock indexes suffered heavy losses, with the Nasdaq falling into a bear market and hitting a new low this year, as investors worried about slowing global economic growth and the Federal Reserve’s more aggressive interest rate hikes. Among them, the most pressure on the Nasdaq was Tesla.

Tesla’s stock price plummeted 12.18% on Tuesday, leading the decline of the technology giant. Its market value evaporated by about $125 billion in one day, falling below the $1 trillion integer mark. The value of Musk’s Tesla shares also fell by $21 billion, and The $21 billion in cash he pledged to buy Twitter was valued flat.

Some analysts pointed out that the market is not optimistic about Musk’s acquisition of Twitter. Because Musk may need to significantly sell his Tesla shares held by himself to raise funds for the acquisition, and after the acquisition is completed, Musk needs to share the energy of managing Twitter, which may affect Tesla’s day-to-day operations.

Wall Street News previously mentioned that Musk has received $46.5 billion in funds to acquire Twitter, but more than two-thirds of the funds are either paid out of his own pocket or pledged with his Tesla stock.

Musk, who paid $2.6 billion for a 9.1 percent stake in Twitter in recent months, has about $3 billion in cash or other liquid assets, according to Bloomberg estimates. His Tesla stock and SpaceX stake total about $184 billion.

Musk needs to pledge about 58.7 million Tesla shares to secure the $12.5 billion margin loan included in the debt financing. That would bring the total number of shares he pledged to about 85% of his holdings. The margin loan documents did allow Musk to sell his unpledged Tesla stock.

The unpledged stock is worth more than $25 billion, so if Musk chooses to sell it all, plus the cash he now has, it would be enough to cover the $21 billion after-tax equity financing. But it has also raised concerns among investors and analysts.

Shares of Twitter also fell 3.9% to close at $49.68 on Tuesday, even though Musk agreed on Monday to buy the company for $54.20 a share in cash. The widening spread reflects investor concerns that a sharp drop in Tesla’s stock price could lead Musk to reconsider the Twitter deal, since most of Musk’s $239 billion fortune comes from Tesla.

According to Reuters, Ed Moya, senior market analyst at OANDA, said:

If Tesla’s stock price continues to be in free fall, it will jeopardize his financing.

University of Maryland professor David Kirsch’s research focuses on innovation and entrepreneurship. Investors were starting to worry about a “series of margin calls” on Musk’s loan, he said.

Musk could pay $1 billion breakup fee, back out of Twitter deal

This situation makes people wonder, is Musk “worth it” for a Twitter?

According to the Financial Times, Twitter disclosed in a regulatory filing on Tuesday a “reverse termination fee” that would allow Musk to walk away from a deal with Twitter by paying $1 billion in liquidated damages.

That means Musk can walk away from the deal by paying less than 1% of his net worth and a fraction of the $21 billion in equity he promised to complete the acquisition.

Daniel Rubin, an M&A lawyer at Dechert, an American corporate law firm, said:

No matter what Musk does, he knows his debt limit is $1 billion.

According to the contract: “In no event shall the company (Twitter) be entitled to, or be entitled to, cumulative damages in excess of the parent company’s termination fee.” Rubin said the termination fee “is not even close to market levels” and is “very…  It’s a better deal for Musk.”

Rubin added that the fee was just 2.27% of the total deal value, less than half the penalty a private equity firm typically pays when it walks away from a takeover, which is typically 6% or more.

Brian Quinn, associate professor of law at Boston University, said:

If I were the seller, I’d ask for a decent reverse termination fee – if it’s just 2.27%, I don’t think that’s a lot.

This article is reprinted from: https://news.futunn.com/post/14925368?src=3&report_type=market&report_id=204150&futusource=news_headline_list
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