- The Twitter (NASDAQ:TWTR) board will enforce Elon Musk’s bid to buy the company for $54.20 per share, according to recent reports
- However, TWTR stock is currently trading at a discount of more than 30% the acquisition price
- Investors are attempting to discern whether this deal will go through
It’s once again a rough day to be an investor. Most stocks are down today. However, for investors in social media giant Twitter (NASDAQ:TWTR) and TWTR stock, these declines are incredible.
That’s mostly because Elon Musk is currently under contract to acquire Twitter for $54.20 per share. That said, today’s price action saw TWTR stock drop another 4%. It is currently trading below $37 per share at the time of writing. That’s an impressive 32% discount to the ultimate acquisition price.
Even more impressive is that this move comes on the announcement that the Twitter board plans on enforcing this merger agreement. When a deal such as this is struck, unless there are major undisclosed issues (which would need to be determined by the court), the buyer can be forced to pony up and complete the deal. Thus far, it appears Musk is attempting to find issues with the deal that would nullify this agreement.
Musk is raising concerns over the percentage of bots on the platform to accomplish this task. Interestingly, Musk previously said he was buying Twitter to promote free speech and rid the platform of these bots. Accordingly, most experts seem to think he’ll be unsuccessful in his attempt to quash the deal.
Let’s dive into why TWTR stock is trading at such a massive discount to its acquisition price right now.
Where Will TWTR Stock Go from Here?
Typically, following the announcement of an acquisition of a particular company, that company will trade at or near its acquisition price. The laws of finance deem it so; arbitrageurs should, in theory, buy up shares of a given company up to the acquisition price. Doing so provides nearly risk-free alpha for traders. However, when Elon Musk announces anything, investors appear to take such announcements with a truckload of salt.
There is a $1 billion breakup fee that would come with walking away from this deal. Accordingly, there’s some incentive for Elon Musk to follow through on what he said he was going to do. However, there are also clauses that allow Twitter to legally enforce this deal. If the deal were to fall through, the company would likely lose a large amount of its market capitalization. Therefore, the Twitter board could pursue lawsuits and other avenues to recapture lost shareholder value.
For Elon Musk, this is a situation he may not have envisioned coming into this deal. It’s hard to say where things will go from here. However, the market appears to be pricing in very little probability of this deal going through. TWTR stock is now trading well below its price before the acquisition announcement.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.