For those with a steel-lined stomach, an exciting merger arbitrage opportunity has opened up in the case of Elon Musk's bid to acquire Twitter Inc. (NYSE:TWTR).
Musk, who is reputed to be the world's richest person and controls iconic companies like Tesla (TSLA) and SpaceX, began his campaign to acquire the social network company on April 4. At that time, he revealed he had acquired 9% of Twitter's stock. After some back and forth with the company about joining the board of directors, he backed out and announced his intention to take over the entire company.
On April 25, Twitter announced it had agreed to sell itself to Elon Musk for $54.20 per share. Musk filed documents detailing the committed financing put in place to fund the acquisition provided by a consortium of banks and composed of a senior secured bank facility, secured and unsecured bonds, a master loan facility (using Musk's Tesla stock as collateral) and an equity contribution.
Twitter is a global platform for public self-expression and conversation in real time and the preferred platform for many celebrities to engage with their followers. Musk himself is a prolific user of Twitter, and so this takeover may be a bit of a hobby horse for the world's richest man. He has often opined that he is not happy with Twitter's "editorial policies," i.e. the fact that his tweets are subject to certain SEC regulations due to their ability to move markets as well as Twitter's efforts to moderate its platform (Musk is a self-proclaimed free speech "absolutist").
Currently the gap between the deal price of $54.50 and the stock price of around $41 is very wide. Twitter stock and Elon Musk are widely followed by retail investors, and it is possible that there is a lot of excitement and speculative activity around the stock which adds to volatility. Recently, one of Elon Musk's tweets set the stock plunging, thus opening up an arbitrage opportunity.
Musk said in his tweet that the "Twitter deal [is] temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users." Musk's tweet referred to a Reuters dispatch from May 2 that cited Twitter's 10-Q filing in which the company disclosed the issue of fake accounts and their responsibility for fewer than 5% of Twitter's monetizable daily active users [mDAUs]. He added unreassuringly in a follow-up tweet that he is still committed to the deal. There is of course speculation that Musk is angling for a discount on the buyout price and will not completely renege on the deal, but the fear that Musk is suffering from buyer's remorse is gripping investors.