If Musk's acquisition of Twitter “fails”, it favors Tesla and harms Twitter

When SK terminated its acquisition of Twitter, not only Twitter, but also Musk's “believers” were “trapped.”

The incident where Tesla CEO Musk wanted to buy Twitter has been hotly debated for many months and has yet to reach a final conclusion, but what is certain is that Musk's “failure” in Twitter's acquisition seems to have become a foregone conclusion.

The whole thing is like a game of capital for the rich. The super-rich Musk often “punches”. When news was first released that Twitter wanted to be privatized, Xian Finance once judged that it was likely to end in failure in the end, but now it seems like we are really in the mood.

Musk's acquisition of Twitter due to this incident now seems more like a capital game for rich people. Among them, whether it's Twitter or Tesla, they are more or less affected to varying degrees. Among them, “Twitter” is the biggest “victim.” The moment Musk announced his abandonment of the acquisition of Twitter, the “war” between Musk and Twitter began.

Earlier, on July 8 EST, Musk stated that he would end the agreement to buy Twitter for 44 billion US dollars on the grounds that Twitter had seriously violated several terms in the agreement. Musk said in a letter to Twitter in a regulatory document that Twitter made “misleading statements” about the number of fake accounts on the social platform, and did not provide information on how to assess the prevalence of fake accounts on social platforms, and that the information previously provided by the company “had additional conditions, usage restrictions, or other artificial formatting characteristics”, making it “of little use”, all of which showed that Twitter did not “fulfill its contractual obligations.”

Obviously, Twitter doesn't want to end this acquisition. On Monday EST, Twitter said in a letter that Tesla CEO Elon Musk's act of terminating the $44 billion deal to acquire the company was “invalid and wrong.” Twitter also said that the agreement with Musk has not been terminated, and that bank debt commitments and equity pledges are still in effect.

Twitter has not breached any of its obligations under the agreement, will continue to provide information reasonably requested by Musk in accordance with the agreement, and endeavor to take all necessary measures to complete the transaction.

Musk wants to abandon the acquisition. In addition to the reasons mentioned in the regulatory documents, Huiguan Finance believes that there are two other reasons:

First, Musk's cash pressure to complete Twitter's purchase is huge.

Although Musk is a super-rich person, not all of them are liquid assets. According to the latest data from the Bloomberg Billionaires Index, Musk's wealth is about 259.3 billion US dollars, of which Tesla's shares are worth 176.5 billion US dollars, Tesla's options are worth 56.3 billion US dollars, SpaceX shares are worth 40.3 billion US dollars, and Twitter's shares are 3.4 billion yuan. Bloomberg estimates Musk's cash and other assets are only about $3 billion. So, if Musk wants to spend a huge amount of cash to buy Twitter all at once, it is also very difficult and stressful.

Second, the cash deal to buy Twitter may be a “loss-making” deal.

Why do you say that? On the one hand, if Musk wants to complete the all-cash acquisition of Twitter, he needs more cash. The way to get the cash is likely to sell Tesla shares. Last year, Musk concentrated on selling a large number of volatile Tesla shares worth more than 16 billion US dollars.

This kind of behavior will inevitably affect Tesla's stock price and market value, which in turn will cause the value of Tesla options held by Musk to depreciate;

On the other hand, according to Twitter's performance and stock price performance, the acquisition of Twitter was a “loss-making” deal for Musk.

Initially, Musk bought in cash at $54.2 per share, for a total price of $44 billion. However, in the nearly 3 months since Musk announced that he had reached a deal with Twitter, Twitter's stock price has been falling. On the day Twitter announced its acceptance of the acquisition, the stock closed at $51.70. By the close of the US stock market on Monday, July 11, Twitter had fallen to $32.65, a decline of 37% during this period.

If Musk originally proposed a takeover offer, it is obvious that this is a “loss-making” deal for Musk the savvy.

If this acquisition were to end, it would be a “disastrous” disadvantage for Twitter.

Wedbush analysts Daniel Ives (Daniel Ives) and John Katsingris (John Katsingris) say that if the deal is terminated, the impact on Twitter stocks will be “disastrous.” They also said they expect a “protracted court battle” between Twitter and Musk.

On the morning of July 9, the two analysts mentioned above lowered Twitter's 12-month price target from $43 to $30, and reiterated their neutral ratings. The target price given by Trip Chowdhry (Trip Chowdhry), an analyst at Global Equities Research (Global Equities Research), is even lower, at $20.

Furthermore, Musk's questioning of Twitter's fake accounts is likely to have an adverse impact on Twitter's advertising business.

According to data, Twitter had 229 million daily active users in the first quarter, and Twitter's official May report was inflated by about 1.4 to 1.9 million, which is more than 5%; some independent research institutes believe that it accounts for 10%-15%; “Forbes” published a survey in August last year, saying that nearly half of Musk's own account fans are fake accounts.

Monetized Daily Active Users (mDAU) is one of the key indicators for investors to evaluate Twitter. After all, more than 90% of Twitter's revenue comes from the advertising business. Monetized Daily Active Users (mDAU) is Twitter's main indicator for measuring user traffic on its main platform. It is regarded as an indicator of Twitter's ability to increase advertising revenue, so it has also received close attention from investors and advertisers. Judging from the growth rate in recent quarters, it has slowed and remained around 13%.

In the long run, the key indicator of monetizable daily active user (mDAU) growth is slowing, which will directly affect the trend of Twitter's advertising revenue, which will undoubtedly put greater pressure on Twitter, which relies heavily on ad revenue.

Data show that in the first quarter of 2022, Twitter's total revenue was US$1,201 billion, up 16% year on year and down 23% month on month. Among them, advertising revenue was US$1.07 billion, up 23% year on year and down 22% month on month.

Musk's termination of Twitter's acquisition is beneficial to Tesla.

Wedbush analyst Ives believes that from a quantitative point of view, $100 in Tesla's stock price will be affected by the Twitter acquisition incident. If the stock price rises by $100 from the current level, Tesla's potential increase is 13%. In contrast, when Musk discloses his ownership of Twitter shares, $100 is roughly equivalent to 9% of Tesla's stock price.

Since Musk disclosed his Twitter shares in early April, Tesla's stock price has fallen by about 34%. Tesla shares rose about 2.3% in after-hours trading on Friday after news of Musk's termination of the acquisition was announced.

From Tesla's stock price performance, it can also be seen that Tesla investors will feel quite at ease. As Tesla's performance exceeds market expectations, Tesla will also experience increases of varying degrees.