Shares of Twitter (TWTR) soared almost 8% on July 13, after Hindenburg Research LLC changed its tune on the stock and predicted trouble for Elon Musk in the buyout debacle. Hindenburg Research is an investment research firm with a focus on activist short-selling.
At $36.75, Twitter stock is down about 14% year-to-date and has slipped about 30% from Musk’s buyout bid price of $54.20.
Musk, who is also the CEO of electric car company Tesla (TSLA), agreed to purchase Twitter for $44 billion in cash. However, he has now abandoned the deal, arguing that Twitter violated their agreement. In response, Twitter has sued Musk to try to force him to complete the transaction. The deal’s collapse could pose a $1 billion penalty for either Musk or Twitter.
What Caused Hindenburg’s Shift on Twitter Stock?
Soon after the social media company agreed to be acquired by Musk, Hindenburg revealed a short position in Twitter stock. The investment firm said that Twitter shares could drop sharply if Musk’s buyout bid disappeared. Hindenburg argued that the risk of Twitter falling steeply without Musk posed another risk that the deal could be repriced at a lower rate to save it if problems occurred.
However, Hindenburg has changed its tune on Twitter stock, shifting its position from short to long, and tweeted that it has built a significant long position in Twitter stock. Hindenburg’s latest argument is that Twitter’s complaint poses a great “threat to Musk’s empire.”
What’s Next in the Twitter vs. Musk Dispute?
There are several ways the deal could end, including the parties splitting and someone having to pay the termination fee. However, many investors still hold out hope that Musk will complete his Twitter buyout deal, albeit at a renegotiated lower price. According to a Bloomberg report, a repriced deal could come at a discount of as much as 20%.
Wall Street Cautious About TWTR
On July 13, Piper Sandler analyst Thomas Champion reiterated a Hold rating on Twitter. However, the analyst cut the price target on the stock from $54.20 to $30, which now indicates 18% downside potential. Champion explained that he now values the company as if the Musk buyout deal was not there.
The stock has a Hold consensus rating based on one Buy and 24 Holds. The average Twitter price target of $44.04 implies nearly 20% upside potential to current levels.
Bloggers Are Fairly Bullish About Twitter
TipRanks data shows that financial bloggers’ opinions are 65% Bullish on TWTR, compared to a sector average of 65%.
Key Takeaway for Investors
Assuming Musk’s Twitter buyout deal closes at a repriced bid discount of 20%, the current price still represents a decent opportunity for arbitrage. However, the dispute landing in court leads to several uncertainties, and the outcome may surprise many people. Apart from the showdown becoming messy and costly for both parties, it could also drag on in court for a long time. It’s better to watch this show from the sidelines.
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