If he indeed proceeds with the deal,Elon Musk will be overpaying horribly for Twitter.

If he indeed proceeds with the deal,Elon Musk will be overpaying horribly for Twitter.Credit:AP

Twitter,wary of the potential for Musk to have yet another change of heart,is asking the judge presiding over its case,Kathaleen McCormick,to decide whether the deal is fair and oversee the process to its conclusion.

Why did Musk decide to proceed with a bid that he must know grossly overvalues Twitter?

The obvious conclusion is that he and his lawyers became convinced they were going to lose the case and be forced to honourthe original terms of his offer – or be forced to pay a massive amount of compensation to Twitter and its shareholders with nothing in return.

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With Musk due to be deposed later this week,they may also have been wary of what that might do to their case and his reputation. Already Musk has been forced todivulge a host of sometimes embarrassing text exchanges with some of the world’s wealthier people,among others. Perhaps his ego was mightier than his wallet.

In any event,assuming that he doesn’t make another attempt to walk away from the bid,he’s going to have to come up with $US44 billion for a company that he has been criticising harshly for months andwhich makes no money.

Those critiques of Twitter’s management,people,business model and value and his accusation that Twitter has lied about the proportion of “bots,” or fake accounts,on the platform have damaged the company he will now acquire.

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That is,however,the least of his problems.

He bid for Twitter in April after threatening to do so for weeks. Before his interest became known Twitter shares had been trading at less than $US40 a share in a sharemarket that was already sliding from its peak at the start of this year.

Twitter shares rocketed after resuming trading on Wall Street.

Twitter shares rocketed after resuming trading on Wall Street.Credit:AP

Since then the overall market has fallen more than 17 per cent and the more relevant Nasdaq market,with its technology focus,has slumped 23 per cent.

If Twitter shares had tracked the market,they might well be trading at or below $US30 each if Musk had never become involved.

In fact they would almost certainly be trading below $US30 and potentially well below that level,given what has happened to other social media companies.

Shares in Facebook’s parent,Meta Platforms,have fallen about 40 per cent since the day Musk tabled his bid for Twitter. Snap shares have fallen more than 70 per cent.

Musk,assuming he can and does make good on his commitment to bid – he might not be able to complete the funding arrangements in this market – can only blame himself for the value-destroying predicament he finds himself in.

Shares in Digital World Acquisition Corp – the special purpose vehicle trying to buy Donald Trump’s struggling Truth Social platform – were trading around $US57 in April (having been well above $US100 in March). They are now valued by the market at $US19.

(The revival of the bid for Twitter and Musk’s stated plan to lift Twitter’s ban on Trump is another piece of bad news for Digital World and Truth Social,given that Trump’s tweets are their major,albeit non-exclusive,asset.)

Musk will be clearly overpaying for Twitter in this market – by at least $US10 billion and probably significantly more.

Among those who will be unhappy about his revival of the offer will be Tesla shareholders,concerned that Musk will be spreading himself too thin (the Tesla share price tanked the moment he committed to the bid back in April) and his bankers.

Tesla shareholders will be among those displeased if the deal goes ahead.

Tesla shareholders will be among those displeased if the deal goes ahead.Credit:Bloomberg

While the banks arranging the debt funding for the bid – Morgan Stanley,Bank of America and Barclays – will collect several hundred million dollars in fees,the ability of those banks and others that have committed to providing $US13 billion in debt funding to on-sell their exposures without loss is questionable.

The US Federal Reserve Board’s decision to raise US interest rates by three percentage points since March has transformed the financial landscape in the US and elsewhere. Rates have risen and the spreads between US government debt and riskier credits have blown out.

Trying to sell a $US6.5 billion leveraged loan,$US3 billion of secured bonds and $US3 billion of unsecured bonds in this market will be problematic.

Last month a group of major banks trying to sell down their exposure to the $US15 billion funding for the leveraged buyout of Citrix Systems were left holding $US6.5 billion of the debt and,because those loans that they could sell were sold at discounts to their face value,were left nursing (according to Bloomberg) about $US600 million of losses. Musk’s bankers might now face a similar fate.

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The only consolation for Musk might be that,to finance his share of the equity component of the funding for the bid,he has sold more than $US15 billion of his Tesla shares at prices above the current share price. Using those proceeds to pay well over the odds for Twitter,however,may not be his optimal outcome.

Musk,assuming he can and does make good on his commitment to bid – he might not be able to complete the funding arrangements in this market – can only blame himself for the value-destroying predicament he finds himself in.

His failure to conduct any due diligence on Twitter before bidding – he waived that right – left him without any escape clauses when Twitter insisted that he complete the deal and went to court to enforce the agreement he had signed.

While Musk can never be underestimated,that failure looks like ending in,even in the context of the wealth of the world’s richest man,a horrendously expensive vanity purchase.

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