Elon Musk Says His Takeover of Twitter Is ‘On Hold’
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The sell-off on Wall Street cooled slightly in early trading on Friday, backing away from bear market territory, though stocks are still heading toward their sixth consecutive weekly decline.
Stocks rose slightly in early trading on Friday, with the S&P 500 gaining around 1 percent, and Nasdaq up about 1.9 percent. Still, the S&P 500 is on track to continue its streak of losses as concerns over inflation and rising interest rates continue to weigh on investors.
Yields on government bonds, a proxy for investor expectations about interest rates, also rose on Friday.
The long stretch of declines have pushed the S&P 500 closer to a bear market, or a decline of 20 percent or more from recent highs. Through Thursday, the index was down 18 percent from its Jan. 3 peak. That type of drop signals that investors have turned more pessimistic about the stock market and the overall economic outlook. The Nasdaq composite fell into bear market territory in early March and is now 29 percent lower than its November high.
Wall Street’s slump partly reflects growing concerns over the consequences of rising interest rates. The Federal Reserve began raising rates in March, and as inflation keeps running at a rapid pace — with the latest report showing that inflation increased 8.3 percent through April — officials say they may have to take more drastic measures that could cause “some pain.” But economists are worried that the policy move could slow down the economy because consumer and corporate spending could ebb if borrowing becomes more expensive.
Concerns over inflation are also being exacerbated by the war in Ukraine and by Covid-19 lockdowns in China. Oil prices remain volatile amid changing prospects of energy demand.
West Texas Intermediate, the U.S. benchmark crude, was up 2.1 percent to $108.38 a barrel on Friday. Brent crude, the international standard, rose 2 percent to $109.67 a barrel.
In Europe, stock indexes edged higher, with the Stoxx Europe 600 up 1.5 percent.
The recent slide in stocks has the S&P 500 approaching a bear market, Wall Street’s label for a sustained downturn in the markets that reflects serious pessimism about the outlook for the economy.
Stocks will enter a bear market, at least by most conventional definitions, when the S&P 500 has dropped 20 percent from its last peak. Through the end of trading Thursday, the index had dropped more than 18 percent from a Jan. 3 record. Stocks rose on Friday, with the S&P 500 up about 1 percent.
The Nasdaq composite, a benchmark that’s heavily weighted toward technology stocks, is already in bear market territory — having ended Thursday down 29 percent from its mid-November record.
The declines have come as investors grapple with the combination of the Russian invasion of Ukraine, which resulted in sanctions that severely limited gas supplies; global supply chain problems as the coronavirus pandemic grinds on; and an inflation problem that is prompting the Federal Reserve and other central banks to raise interest rates quickly.
The “headwinds” will “drag the S&P 500 into a bear market,” said Victoria Greene, chief investment officer at G Squared Private Wealth, an advisory firm. “We still have some structural problems — hawkish Fed, Ukraine, commodity price pressure, Covid shutdowns in China, inflation — that are pressuring growth expectations.”
The 20 percent trigger for a bear market — like the 10 percent trigger for what investors call a “correction” — are somewhat arbitrary thresholds. But they serve as mile markers to show that investors have turned pointedly more pessimistic about the market.
There is skepticism about the use of the terms correction and bear market, whose precise definitions have only been in use since the 1980s. Corrections are not uncommon, with the last one having started in January of this year, one of nearly a dozen since 2000.
Some corrections don’t last very long, like one in early 2018, which lasted less than two weeks. In some instances, stocks regained their previous peaks in a few months.
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In the latest bomb in the Twitter takeover drama, Elon Musk tweeted this morning that his $44 billion bid was “temporarily on hold” until he could verify the company’s estimate that spam and fake accounts on its platform made up less than 5 percent of total users (that number is not new). About two hours later, Mr. Musk tweeted that he was still “committed” to the acquisition.
Twitter shares had already fallen by 20 percent in premarket trading, while Tesla shares had jumped by 6 percent.
The tweets fed into swirling speculation that Mr. Musk may back out of the deal, as shares of Tesla, Mr. Musk’s main source of personal income, have tumbled. Mr. Musk had a covert meeting at Twitter’s San Francisco headquarters last Friday to discuss business and deal logistics, DealBook has confirmed, implying he was, at least then, focused on going through with it. (A spokesperson told DealBook that “as part of the transaction planning process, Elon Musk visited Twitter’s office for a meeting.”)
And he has already signed a contract. Beyond the $1 billion breakup fee, Twitter could take Mr. Musk to court to force him to pay for the deal if his debt financing is intact, per the deal contract.
Mr. Musk might be trying to push for a lower price by laying the grounds for a finding of material adverse change, similar to what LVMH did in its acquisition of Tiffany, citing financial damage caused by the pandemic. LVMH ultimately got a lower price for the deal.
But the “adverse change” threshold is high. And given the speed and limited diligence with which Mr. Musk pursued the Twitter deal, he is unlikely to find a sympathetic judge. Mr. Musk has already told investors he thinks Twitter can quintuple its revenue, which would make Twitter a steal at $44 billion.
“He’s already signed on the dotted line that says he bought a house,” said Brian Quinn, an associate professor at Boston College Law School focusing on corporate mergers. “If after you buy a house, you say, ‘I want to get a lower price,’ the seller will say no.”
This deal looks different than it did a week ago, and now we know more about Twitter’s challenges. Parag Agrawal, the company’s chief executive, said yesterday that two top executives were leaving. (Those executives tweeted that they had been fired.) Mr. Agrawal also said he had frozen most new hiring and was slashing spending. He said the moves stemmed partly from the company’s failure to hit goals in audience and revenue growth. Twitter shares closed yesterday at $45.22 — well below the $54.20 Mr. Musk has offered. More broadly, tech stocks are facing a blood bath.
Shares of Tesla are under pressure. Mr. Musk may be the wealthiest man in the world, but much of his wealth is tied up in Tesla — which he has heavily leveraged to help build the rest of his business empire. Tesla shares were at $1,145 the day he announced his initial stake in Twitter. They were at $728 yesterday. Mr. Musk had already been looking to lower the extent to which he was leveraging his Tesla holdings to buy Twitter: He first said he would take a $12 billion loan against his Tesla shares before reducing that to $6.25 billion. (He is reportedly looking to scrap the loan altogether.)
Mr. Musk’s tweets could come under scrutiny from the Securities and Exchange Commission. They moved shares of Tesla and Twitter, indicating that the information should have been something shareholders found out about in a public filing with the agency. Should that be added to the long list of regulatory issues Musk has run into with this bid?
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On April 4, Elon Musk revealed that he had purchased a sizable stake in Twitter. Three weeks later, Mr. Musk and Twitter reached a deal for the billionaire to acquire the social media company entirely and take it private. But now Mr. Musk says his bid is “temporarily on hold” until he can get more details to confirm that spam and fake accounts represent less than 5 percent of the social network’s total users.
Here are highlights of our coverage of the twists and turns in this saga:
Elon Musk Becomes Twitter’s Largest Shareholder (April 4): The Tesla chief executive, who has been critical of Twitter’s content moderation policies, has bought 9.2 percent of the social media company.
Elon Musk Joins Twitter’s Board, Pitching Ideas Big and Small (April 5): Free speech, open-source algorithms — and an edit button: The world’s richest person will soon help steer the social media platform where he has a huge following.
Elon Musk Will Not Join Twitter’s Board, Company Says (April 10): The announcement reverses a decision made days earlier. By not joining Twitter’s board, Mr. Musk will also no longer be bound by a previous agreement he had signed with the company.
Elon Musk, After Toying With Twitter, Now Wants It All (April 14): The billionaire executive recently became one of the company’s largest shareholders. Now he says he wants to buy the whole thing and change how it handles speech.
Twitter Counters a Musk Takeover With a Time-Tested Barrier (April 15): With a “poison pill” defense, Twitter seems intent on fending off the billionaire’s bid to buy it.
Elon Musk Races to Secure Financing for Twitter Bid (April 19): Mr. Musk is trying to shore up debt financing, including potentially taking out a loan against his shares of Tesla.
Elon Musk Details Plan for $46.5 Billion Twitter Takeover (April 21): The financial commitments from a group of banks put pressure on the social media company’s board to take his advances seriously.
Twitter in Advanced Talks to Sell Itself to Elon Musk (April 24): The company’s 11-member board held negotiations with Mr. Musk over his offer to buy the social networking service.
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Elon Musk to Buy Twitter (April 25): The Tesla chief executive struck a deal to buy the site for roughly $44 billion. Here is how we covered the news in real time on the day Mr. Musk and Twitter announced their agreement.
Elon Musk Has Brought In New Investors to Fund His Twitter Deal, a Filing Shows (May 5): Mr. Musk revealed that he had raised around $7 billion from 18 entities to help fund his bid. The investors were a mix of Mr. Musk’s Silicon Valley friends as well as cryptocurrency companies, family offices, sovereign wealth funds, property firms and mutual-fund companies.
Elon Musk Says He Would ‘Reverse the Permanent Ban’ of Donald Trump on Twitter (May 10): Mr. Musk has said he wants Twitter to be a forum for debate, and he called the barring of Mr. Trump “morally wrong.” The former president has said he would not rejoin the platform.
Elon Musk Says His Takeover of Twitter Is ‘On Hold’ (May 13): Mr. Musk announced in a tweet that he wanted more details to confirm that spam and fake accounts represent less than 5 percent of the social network’s total users. About two hours later, Musk tweeted that he was still “committed” to the acquisition.
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Jerome H. Powell, the chair of the Federal Reserve, said the central bank has both the tools and resolve to bring down rapid inflation — though he acknowledged that the path to lower price increases could be a painful one.
“The process of getting inflation down to 2 percent will also include some pain, but ultimately the most painful thing would be if we were to fail to deal with it and inflation were to get entrenched,” Mr. Powell said, speaking during an interview with Marketplace on Thursday.
Mr. Powell was confirmed to a second four-year term at the head of the Fed on Thursday afternoon. He and his colleagues are facing down a challenging situation: While the economy is strong and jobs are plentiful, inflation is running at nearly the fastest pace in four decades. The central bank is tasked with fostering full employment and price stability, so it is in charge of slowing it down.
Consumer prices climbed 8.3 percent in April from the prior year, and while inflation eased somewhat on an annual basis, the details of the report suggested that price pressures continue to run hot.
The Fed has already begun raising interest rates to try and cool the economy, including making its largest increase since 2000 earlier this month. Mr. Powell and his colleagues have signaled that they will continue to push up borrowing costs as they attempt to restrain spending and hiring, hoping to bring demand and supply into balance and drive inflation lower.
While the Fed chair seemed to rule out a large 0.75 percent rate increase for the time being during a news conference last week — saying such a big move was not currently under consideration — he made clear that it could be appropriate if the economy surprises officials in a negative way.
“If things come in better than we expect, then we’re prepared to do less,” Mr. Powell said. “If they come in worse than when we expect, then we’re prepared to do more.”
The looming question for the Fed is whether they will be able to slow the economy enough to temper inflation without spurring a recession — something Mr. Powell and his colleagues have repeatedly acknowledged is likely to be a challenge.
“There are huge events, geopolitical events going on around the world, that are going to play a very important role in the economy in the next year or so,” Mr. Powell said on Thursday. “So the question whether we can execute a soft landing or not, it may actually depend on factors that we don’t control.”
Source: https://www.nytimes.com/live/2022/05/13/business/economy-news-stocks-inflation
