Elon Musk is using a 'dog ate the homework' excuse to potentially back out of buying Twitter and there is now a less than 50% chance the deal gets done, Wedbush says

Elon Musk Axel Springer Awards
Elon Musk.HANNIBAL HANSCHKE /Getty Images
  • Oops!
    Something went wrong.
    Please try again later.
  • Elon Musk's excuse about Twitter bots is a way to back out of the deal, Wedbush said.

  • Musk agreed to buy Twitter for $44 billion but could be feeling pressure amid falling Tesla stock.

  • "We view the $44 billion Twitter deal as having less than a 50% [chance] to get done," Wedbush said.

There is now a less than 50% chance that Elon Musk will acquire Twitter for $44 billion, a Monday note from Dan Ives, a Wedbush analyst, said.

Musk, who plans to put up a big chunk of his Tesla stake to finance the Twitter buyout, raised concerns last week about the proliferation of bots on the social-media platform, adding that until his concern was sorted out, the deal would be on hold. Musk's sudden concern about bots sent Twitter shares plunging 10% on Friday.

Ives said he viewed Musk's concern about bots as a "dog ate the homework" excuse that the billionaire could use to either back out of the deal or lower the price of his proposed buyout, $54.20 a share.

"Our view is while Musk is committed to the deal the massive pressure on Tesla's stock since the deal, a changing stock market/risk environment the last month, and a number of other financing factors has caused Musk to get 'cold feet' on the Twitter deal with the bot issue not a new issue and likely more of a scapegoat to push for a lower price," Wedbush said.

Bots have always been a concern for Twitter, but Jack Dorsey, the platform's founder and former CEO, largely cleared up much of the bot issue over the past few years, according to Ives.

But Musk's apparent pause on the deal until he is comfortable with the bot situation puts Twitter between a rock and a hard place, as no other strategic or financial bidder has stepped forward and matched Musk's offer for the company.

"And Musk knows that, which is why in a changing market and with Tesla losing ~$300 billion of market cap since the deal we view the $44 billion Twitter deal as having less than a 50% [chance] to get done as of today," Ives said.

If the deal doesn't get done, Twitter will collect a $1 billion breakup fee, but that's still not going to prevent the stock from plunging to below $30, Ives said.

"Musk is still committed to the deal per his tweets and appears like he wants to get it done, but the financing stress and equity financing overhang on his golden child Tesla has cast a long shadow on this deal," Ives said.

Tesla's stock popped more than 5% on Friday as investors likely warmed to the idea of Musk not going through with his deal to buy Twitter, which would make him less likely to sell a big chunk of his shares.

"The bot issue at the end of the day was known by the New York City cab driver and feels more to us like the 'dog ate the homework' excuse to bail on the Twitter deal or talk down a lower price," Ives said.

Read the original article on Business Insider