Cutting Back

Other tech stocks show how far TWTR
could fall without a deal. (WSJ)

I rationalized last week's purchase of Twitter shares as entertainment, which has to be the consolation since it's already turned out to be a bad investment.

Early Friday morning Elon Musk tweeted that the $44 billion acquisition was "on hold": [bold added]

Elon Musk said his planned acquisition of Twitter Inc. was “temporarily on hold” because of concerns about fake accounts, a surprise twist that jolted investors and raised questions about his willingness to go through with the $44 billion transaction...

The initial announcement was unorthodox not just in its timing and format, but because Mr. Musk referenced a recent Twitter disclosure about fake and spam accounts that it has made consistently for years—and because Mr. Musk has already signed an agreement for the purchase and waived detailed due diligence on the deal.

The sudden shake-up fueled questions about whether Mr. Musk is committed to a deal that was struck amid a sharp decline in technology stocks that has made Twitter less valuable on paper than it was a month ago when he made his offer of $54.20 a share. Twitter shares, which were already trading well below that level, closed down 9.7% in afternoon trading at $40.70...

It couldn’t be determined if the latest tweets were a negotiating tactic to abandon the transaction or reprice the deal.

Elon Musk reportedly must pay a penalty of $1 billion if he cancels the Twitter deal. A back-of-the-envelope calculation shows that a final price under $53 per share will more than cover that expense.

It would be entirely rational for Elon Musk to renegotiate, especially since Twitter's valuation without the acquisition in today's falling market could well be around $25. Assuming that the final price will be $35, I will take a beating on my purchase at $51. (The reassessed expected value is $32.46, above right.)

I'll be cutting back on double-shot lattes to make up the difference.