When Elon Musk announced his intention to buy Twitter almost 90 days ago, the world and the financial markets looked different.
The S&P 500 was up 14 percent and had yet to enter a bear market. The war in Ukraine and inflation concerns had pushed investors to sell, but sentiment had not collapsed. And Tesla, the electric car maker that is Musk’s main source of wealth, was about to announce record profits.
The mood of Wall Street and corporate America has since changed. US stocks just closed their worst start to the year since 1970. Tesla has started To fire workers after Musk indicated he had a “super bad feeling” about the economy. The second half of the year looks uncertain at best.
In this climate, Musk’s offer to pay $44 billion for Twitter, buying the shares he doesn’t own for $54.20 each, seems too high, and now, unsurprisingly, he wants to go out.
“The market has changed dramatically since April,” Daniel Ives, a strategist at Wedbush Securities, told me.
Musk took steps Friday night to terminate his deal to buy Twitter, claiming the company is “materially in breach of multiple provisions” of the original deal.
For weeks, Musk has expressed concern, with no apparent evidence, that there are a greater number of bots and spam accounts on the platform than Twitter has said publicly. Analysts speculated that the fight was an attempt to create a pretext to get out of a deal that now seemed too expensive.
Musk’s offer represented a 54 percent premium to Twitter’s price before Musk began increasing his holding in late January, and a 38 percent premium before his holdings were revealed in April.
In early July, Twitter shares were trading at just $38.23, down almost 12% from the beginning of the year and almost 30% below Musk’s offer price.
On the radar: Twitter stock would probably be a lot worse off if Musk hadn’t made his move. Investors have been dumping fast-growing tech stocks, which are less attractive when interest rates are rising, and social media companies have been hit hard.
Facebook’s Meta has seen its shares fall nearly 50 percent so far this year. Snapchat is 68 percent lower.
Then there’s Tesla stock, which Musk planned to rely on in part to fund the deal. It has also dropped sharply, plummeting 30 percent since the beginning of April.
“The Twitter fiasco had a huge impact on Tesla stock and that’s Musk’s golden son,” Ives said.
Musk isn’t calling his fickleness buyer’s remorse. But Ives thinks it’s clear that was an important factor.
What happens next: The stage is set for a long and dramatic legal battle. Twitter has said it intends to force Musk to close the sale, and it’s not hard to see why. Shares of Twitter fell more than 5 percent in premarket trading on Monday. With the acquisition pending in court, Ives thinks it could drop another 30 percent to $25.