Vincent Martin | Jul 06, 2022 13:14
This article was written exclusively for Investing.com
It seems hard to believe, but it was less than three months ago that Elon Musk announced his offer to acquire Twitter (NYSE:TWTR). A week and a half later, the social media company agreed to sell itself to the Tesla (NASDAQ:TSLA) chief executive officer for $54.20 per share.
On Apr. 25, the day the deal was announced, TWTR stock last traded at $51.70. It closed Tuesday at $38.38—26% lower.
The decline is due to one simple fact: the market doesn't actually believe Elon Musk is going to wind up owning Twitter. More accurately, the market doesn't believe Musk will wind up owning TWTR at a price of $54.20 per share.
The question is why the market believes that—and if that belief is correct. If it isn't, there's good money to be made in TWTR stock below $40.
The most obvious reason to believe that Musk won't pay $54.20 per share is that, almost since the agreement was announced, the Tesla CEO seemingly has been trying to back out of the deal.
Twitter and Musk announced the agreement on Apr. 25. Two days later, Musk merger arbitrage , can be dangerous. The downside in TWTR might be higher than the upside.
But, overall, it does seem like the market is presuming that the odds of something going very wrong are much higher than they actually are. The most likely outcome is that Elon Musk indeed acquires Twitter. In that outcome, investors who buy TWTR at $38 should do well—and possibly quite well.
Disclaimer: Vince Martin has no positions in any securities mentioned. He may initiate a position in TWTR stock or options in the near future.
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