A report by US-based activist short seller Hindenburg Research on Twitter prompted Elon Musk to respond with a retort on Monday. Hindenburg Research released a report on Monday, saying it is short on Twitter stock. Hindenburg said that since Elon Musk holds all the cards in the deal with the social media platform, the short seller sees a significant risk that the Twitter deal could get “repriced lower” if the billionaire backs out from the deal. Responding to the report in a tweet, Musk said, “Interesting. Don’t forget to look on the bright side of life sometimes!”
Musk has an option to walk away from deal by paying $1 bln break-up fee
“We believe that if Elon Musk’s bid for Twitter disappeared tomorrow, Twitter’s equity would fall by 50% from current levels. Consequently, we see a significant risk that the deal gets repriced lower,” Hindenburg said. The report further said that it believes the $1 billion breakup fee that Musk needs to pay if he walks away from the deal is “really an option”. Several brokerages such as CFRA Research have indicated that there is a high probability that the deal would close at the stated offer price, except if the world’s richest person has a change of heart.
“Some market observers have debated whether Musk can simply walk away from the deal by paying the $1 billion breakup fee,” Hindenburg Research said in the report. “Given that Musk has direct influence on the financing and no apparent fear of a court battle, the possibility of this clause being enforced successfully seems incredibly remote. In sum, we believe Musk could walk away from the deal for a $1 billion breakup fee. Given the above collective dynamic, Musk has incredible leverage to renegotiate should he choose to,” it added.
The short seller, however, added that, “We are supportive of Musk’s efforts to take the company private, and believe he could get it done, but see no reason why he should at these levels.”
Twitter deal puts “undue pressure” on Tesla stock
Hindenburg also said that the “overpriced Twitter deal” is “placing undue pressure on Tesla, due to equity sales and the prospect of more margin debt,”. Elon Musk has sold nearly $8.4 billion in Tesla shares to help raise capital for his $44 billion Twitter bid. The sale of Tesla stock contributed to its stock falling nearly 12 per cent. Hindenburg said Musk has also pledged about 88.3 million Tesla shares as collateral for loans to finance the bid. Tesla’s stock is down 34 per cent year-to-date. While Twitter’s stock is up 12 per cent year-to-date.
“Placing both Twitter (and ultimately Tesla’s) future on a foundation of further equity-backed margin loans, or potentially more sales of Tesla equity amidst a volatile market, adds risk to both enterprises,” it added. Cathie Wood’s Ark Invest, which is one of the noted Tesla bull, sold about 0.14 per cent of Tesla stock or 15,862 shares owned by various ETFs on Monday.
Hindenburg became more popular among investors after its report on US-listed electric-maker Nikola Corp stated that the company misrepresented facts about its products. It led to an investigation by the US Securities and Exchange Commission last year and criminal indictment of its founder and chief executive Trevor Milton.
