Twitter’s market capitalization drops to $9 billion less than Musk’s purchase price

As Elon Musk seeks ownership of Twitter, the social media company’s shares are dropping, indicating some concern among investors that the deal won’t make it to the finish line.

Twitter is down about 12% since hitting its highest level of the year in late April. As of midday Thursday, the stock was trading at about $46, well below the $54.20 that Musk agreed to pay on April 27. The difference represents about $9 billion of market value.

Although Twitter’s board of directors approved the purchase, it could take months for the deal to close, and there is no guarantee that it will. Musk will have to pay $1 billion in breakup fees if he chooses to walk away. Tesla CEO is worth more than $220 billion.

“The market has little confidence that the deal will go through due to regulatory challenges,” Mark Mahaney, an analyst at Evercore ISI, said in an email, adding that this was his “very quick interpretation” of the stock movement.

Before Musk attempted to buy Twitter outright, he failed to disclose more than 9% of his stake in the company within the mandatory 10-day window of the SEC.

The information said the Federal Trade Commission is investigating the timing of Musk’s disclosure. Bloomberg later reported that the FTC is separately reviewing the acquisition itself, although many experts do not expect the deal to raise antitrust concerns.

The FTC has not disclosed the ongoing investigations, and an FTC spokesperson declined to comment.

Dan Ives, an analyst at Wedbush Securities, estimates there is a 90% or greater chance of closing the deal with Musk, but he sees three things contributing to the pressure on the stock.

First, Twitter shares will only be valued at $20 if it remains a public company. Second, he said regulatory issues are casting a shadow over the deal. Finally, Ives said, that Musk financing the deal, in part by leveraging his shares in Tesla, presents greater risk and uncertainty.

Musk may be trying to address funding concerns. Bloomberg reported Thursday that he is in talks to raise equity and preferred financing to eliminate the need for a $6.25 billion margin loan tied to his Tesla shares. CNBC has not confirmed the report.

Ives said such a move could give “the street more confidence that Musk is not only going left if pressure on Tesla shares increases.”

Ives expects more twists and turns ahead.

“This is a TV series,” he said. “It will have many different seasons.”

Internally, Twitter may take steps to shore up its balance sheet in the event that Musk withdraws as inflationary pressures hit the broader tech market. The company confirmed Thursday that it has paused most hiring, and said two of its top executives — chief consumer Kayvon Beykpour and chief revenue product Bruce Falck — would be leaving the company.

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