Hindenburg sees Twitter share potentially falling to $31.40/share without a Musk deal after the Nasdaq's recent decline.
"Since the day before Musk disclosed his initial stake in Twitter, multiple developments have weakened the company’s position, threatening the current deal dynamic," Hindenburg wrote in the report. "As a result of these developments, we believe that if Elon Musk’s bid for Twitter disappeared tomorrow, Twitter’s equity would fall by 50% from current levels. Consequently, we see a significant risk that the deal gets repriced lower."
Hindenburg also highlighted that the Twitter (TWTR) reported weak 1Q results and disclosed it had "overstated" users just days after accepting Musk's bid. The report also said that the "overpriced" Twitter deal is placing "undue pressure" on Tesla (TSLA) due to the equity sales and the prospect of more margin debt."
The short selling report also argued that there's the potential for Musk to walk away from the Twitter (TWTR) deal by paying a $1 billion breakup fee. Although there's a clause in the deal that Musk has to close the transaction if he has the financing available, these challenged are "rarely enforced," according to Hindenburg.
"In sum, we believe Musk could walk away from the deal for a $1 billion breakup fee," Hindenburg wrote in the report. "Given the above collective dynamic, Musk has incredible leverage to renegotiate should he choose to."
Twitter's discount to the Musk's $54.20/share deal is now at a relatively wide 11% and has been fluctuating since the deal was announced. The spread is viewed as wide due partly to potential political and regulatory risks associated with Musk's deal. Although financing had also been a concern by some, it appears to have been largely alleviated when that Musk had lined up $7.1B in financing.
"Twitter is currently trading at about a ~10% discount to its current proposed go-private price of $54.20," Hindenburg added. "We view the risk of a higher competing offer as extremely low, essentially capping the downside on a short at these levels."
Earlier Monday, Saudi prince confirms rolling stake into new Twitter.