Twitter Retreats As Musk Says The Company Materially Breached The Deal

Key Insights

• Elon Musk believes that Twitter has materially breached the merger agreement. 
• Musk wants to see data that proves that Twitter has less than 5% of fake and spam accounts. 
• Twitter’s losses may be limited as short-sellers could be afraid to aggressively short in the stock in the sub-$40 territory. 

Twitter Falls As Musk Demands More Data On Spam And Fake Accounts

Shares of Twitter found themselves under pressure after reports indicated that Elon Musk could cancel the deal if the company does not provide data on spam and fake accounts.

According to the reports, Musk believes that Twitter was in a “clear material breach” of its obligations. In this case, Musk can terminate the deal.

Elon Musk has previously put the deal on hold “pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users”.

As the recent reports indicate, Musk did not receive such details from Twitter, so the deal is in danger. Not surprisingly, traders rushed to sell Twitter stock at the opening.

What’s Next For Twitter Stock?

The near-term dynamics of Twitter stock depend on the market’s perception of the likelihood of the deal with Musk. Traders will ignore financial projections  and focus on the fate of the deal.

The deal implies a Twitter stock price of $54.20 per share, which could limit traders’ desire to short the stock at sub-$40 levels.

The key question for traders is whether Elon Musk still wants to buy Twitter and is using the fake/spam accounts topic to get a better price. Another important factor is whether Twitter itself wants to be sold, as the company is not actively engaging with Musk.

Most likely, the stock will remain extremely volatile in the upcoming trading sessions. While the probability of the deal has decreased in recent weeks, the stock may fail to develop significant downside momentum as short-sellers will be worried that they could have to buy the stock back at $54.20 if the deal succeeds.

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