Twitter climbs as investors eye increased likelihood Elon Musk closes his deal to buy the social media company after selling $7 billion in Tesla stock

·2 min read
Elon Musk
Maja Hitij/Getty Images
  • Twitter stock jumped as much as 4% on Wednesday after Elon Musk disclosed that he sold $7 billion worth of stock.

  • Investors see Musk's sale of stock as a sign that his $44 billion buyout deal for Twitter is likely to move forward.

  • Musk tweeted that his sale was "to avoid an emergency sale of Tesla stock" in the event that he loses equity financing for the deal.

Twitter stock jumped as much as 4% Wednesday after Elon Musk disclosed in a filing with the SEC that he sold $7 billion worth of Tesla stock over the past few days.

Wall Street is viewing Musk's Tesla sale as a positive for Twitter's chances of closing its merger with Musk after a judge ruled that a trial between the two would start in October.

"The Street and legal experts across the board view Twitter as having a 'strong iron fist upper hand' heading into the Delaware court battle this Fall after months of this fiasco and nightmare playing out since April," Wedbush analyst Dan Ives said in a Wednesday note. "Twitter's board is holding Musk's feet to the fire to finish the deal at the agreed upon price."

According to a tweet from Musk, his sale was "to avoid an emergency sale of Tesla stock" in the "hopefully unlikely event that Twitter forces this deal to close *and* some equity partners don't come through." Musk has sold more than $30 billion worth of Tesla stock over the past year, but said he would buy Tesla stock if his deal with Twitter falls apart.

The potential for that to happen hinges on Musk's upcoming court date with Twitter, which could pressure the two companies to come to a settlement in the form of Musk paying a break-up fee. Whatever happens, it seems near-impossible that Musk can walk away from his deal to buy Twitter without coughing up a few billion dollars.

Musk signed a contract in April to buy Twitter for $54.20 per share, or $44 billion. The contract included Musk waiving his due diligence rights on the deal. Shortly after the agreement, Musk started to doubt the number of bots on Twitter's platform and has accused management of flubbing the numbers.

Ultimately, investors are still skeptical that the deal between Twitter and Musk will get done, as the spread between Twitter's current stock price and the buyout price of $54.20 per share is 20%, which is about triple the typical merger arbitrage spread of a soon-to-be acquired company.

Twitter stock is down just 1% year-to-date, and is up more than 35% from its mid-July low. 

Read the original article on Business Insider