The Short-seller Hindenburg Research Was Right: Twitter Crashes as Elon Musk Puts Takeover Deal on Hold Amid Reports of Sizable Fake Accounts

By Rohail Saleem  / 
This is not investment advice. The author has no position in any of the stocks mentioned. WCCF TECH INC has a disclosure and ethics policy.

Elon Musk has roiled today's pre-market trading session by placing his Twitter takeover deal on a temporary hold.

To wit, Twitter had estimated in a filing on Monday that false or spam accounts represented less than 5 percent of its 229 million monetizable daily users in Q1 2022.

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Elon Musk cited Reuters' reporting on this matter to place the Twitter takeover deal on a hold today:

And the reaction from the market has been brutal, with Twitter shares having crashed over 20 percent at the time of writing.

Source: https://www.nasdaq.com/market-activity/stocks/twtr

Bear in mind that Hindenburg Research had revealed its short position on Twitter earlier this week, citing the probability of deal renegotiation.

Specifically, the short-seller believes that Twitter's offer price of $54.20 per share is chronically overvalued. The research house is betting on deal renegotiation, where Musk gets to utilize his substantial leverage to strike a much more aggressive bargain with Twitter's board. According to the tabulation by Hindenburg Research, Twitter's fair value was around $31.40 toward the start of this week. This meant that Musk's current offer price of $54.20 was overvalued by as much as 72 percent.

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Crucially, Hindenburg Research believes that if the deal goes ahead in its present form, it will introduce nosebleed leverage of as much as 8.6x EBITDA. This would make a revival of the social media giant's financial health that much more challenging.

Today's development might be a ploy by Musk to pressure Twitter's board to accept a lower offer price, exactly as Hindenburg Research has theorized.

Readers should note that given the specter of sizable liquidation from Musk to finance his takeover deal of the social media giant, Tesla shares have been tanking of late, with the stock down over 17 percent in just the past 5 days alone. It is hardly surprising, therefore, that today's news is extracting a positive reaction on Tesla, with the stock currently up around 5 percent in early pre-market trading.

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