TWTR - Twitter: Elon Musk's Turn Seems Genuine

Summary

• Elon Musk changed his mind and the deal is back on.
• His initial approach leaves a lot to be desired from Twitter's perspective.
• Musk's turn seems genuine and makes sense in the context of the trial preparations.
• I expect the lawyers will hammer out the details and the deal gets locked-up very soon.
• At $51 per share there's almost 6% upside to the deal price and it now seems likely to close before end of 2022.

I'm taking my Twitter, Inc. ( TWTR ) allocation back up again around ~$51. There's roughly 6.2% upside. That's too much in my view, but there's a reason for the big spread. A lot of arbs have bought this in the $30's and they are sitting on big profits. Why risk these large profits for the few dollars that are left? I think these dollars are pretty attractive because there is likely not a lot of time before you get these and Musk is publicly recommitting.

One of the reasons there's a large spread is because Musk has behaved quite badly. He tried to terminate the deal without any real grounds. Now, he's conceding but in a way that's unacceptable to Twitter. Twitter won't want to stay the lawsuit merely because he *again* promises to close the deal. They've been there before. Twitter is likely to go full steam ahead unless he makes some real tangible commitments that put the proverbial handcuffs on him.

It is very reasonable for Elon Musk to concede here because the way the preparations for the trial are going his chances are extremely limited. This also allows him to avoid a deposition later this week. It also prevents more of his dirty laundry (private emails and other communications) getting aired.

It also allows him to save face. It looks better for Musk if he changes his minds and goes ahead with the deal instead of the judge forcing him to put up the money. If he wants to promote Twitter once he owns it, it doesn't work as well if the thing was forced on him. He's already spinning a positive narrative around the X-app in tweets talking positively about the future of Twitter

"Buying Twitter is an accelerant to creating X, the everything app," Musk tweeted Tuesday evening - referring to his previous idea for creating something of a Twitter rival using his currently inactive X.com Internet domain.

Responding to a user who suggested it would be easier to start X from scratch, Musk said "Twitter probably accelerates X by 3 to 5 years, but I could be wrong" - reiterating a point of view he expressed in August.

Because he's spinning that positive narrative, I doubt the latest letter committing to the deal is a head-fake. It would really hurt his reputation and it doesn't really help in any circumstance. It is too public and he's committing too much.

I'm reading the event path like this:

1. Musk has made a face-saving offer. He pretends he changed his mind about the deal and does want to close. He prefers this to get forced to close by the Delaware court.
2. If he lets the court force him it gets much harder to promote the "new Twitter" with a straight face afterward and get partners on board and such.
3. He's starting to spin the X - everything app story - which indicates he's moving on to the next chapter here. (The lawyers will work out the details)
4. Twitter and Musk hash out some kind of agreement that completely handcuffs him and the deal is sealed & trial off.

At $52 there's 4.23% upside. But at $51 there's over 6% upside. It is very hard for me to see how this could possibly not close from here on out. The most likely outcome buying this here at $52 seems to be a 6.2% return before the end of 2022. Now Musk has changed his mind again, he could move fast. He's known to move fast and as this is ongoing lawyers are working at his expense on both sides of the deal. He's obviously interested in staying the trial, both companies have loads of lawyers on this deal, so things could happen fairly quickly. I cut my position in half at ~$53 but I've built it back up at $52 getting more comfortable about Musk's intent from here on out.

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