The writing is on the wall for Elon Musk’s will-he-won't-he takeover of Twitter Inc (NYSE:TWTR) after the world’s richest man sold billions of dollars of Tesla Inc (NASDAQ:TSLA) shares, according to analysts at Wedbush Securities.
Tesla chief executive Musk, named by Forbes as the world’s richest man, sold US$6.9bn of stock in the electric-vehicle maker yesterday, but his explanations are fairly transparent, reckon analysts at broker Wedbush.
“With the chances of a Twitter deal now more likely in our opinion and the Street seeing through this poker move by Musk, we are raising our price target from US$30 (fair value fundamentally speaking) to US$50 reflecting the higher chances the deal now ultimately closes,” said analyst Dan Ives at Wedbush.
In April, Musk had said he did not plan to sell any more Tesla stock.
However, he is expected to need to pay billions of dollars to settle a court hearing in October, or else be lumped with an exit fee of US$1bn to withdraw from the takeover deal gone sour.
Musk is due to stand trial in a Delaware court in October after Twitter sued him for trying to back out of the deal.
The Wedbush analyst said the odds are “stacked against Musk winning” the trial and that his back is now “against the wall”.
Its analysts expect Musk will “at a minimum” pay US$5bn to US$10bn to settle the court hearing, in which Twitter will claim he refused to honour his obligations under the agreement because it no longer served his personal interests.
Musk’s lawyers previously accused Twitter of materially breaching the contract, saying the social media platform had withheld information that could have supported its claims that there were only 5% of bots on the platform.
Musk filed a counter lawsuit against Twitter’s board, claiming that he and his co-investors had been “misled”.
Ultimately, “Twitter’s board is holding Musk’s feet to the fire to finish the deal at the agreed upon price,” according to Wedbush analysts, who anticipate four possible outcomes in the debacle.
The most likely result of the saga is that Musk is required to settle or pay damages to Twitter, they said, which could range from between US$5bn and US$10bn based on the court’s ruling.
Wedbush analysts said there was a ‘very low likelihood' that the deal would at this stage simply fall through, leaving Musk required to pay a US$1bn breakup fee.
It is also unlikely that Musk will win his court battle on grounds he was not allowed access to information about the number of fake accounts and bots on the platform, as cited in a 13D filing, analysts said.
A fourth possible outcome is that the court will enforce Musk’s US$44bn proposed acquisition of Twitter at a price of US$54.2 per share.
Wedbush has maintained its neutral rating for Twitter, despite raising its expectations for the social media platform's share price, saying the value of its stock is now “deal dependent”.