By Claire Ballentine and Misyrlena Egkolfopoulou
Avid Elon Musk fans won’t be able to follow him into Twitter Inc.
In the aftermath of the Tesla Inc. founder’s $44 billion deal to take the social media giant private, retail investors will no longer be able to own Twitter as a publicly traded stock. Still, many celebrated the Musk victory, either because he’s boosted their investments thus far, or because they think he’ll change the social media platform to align it more closely with their values.
Twitter said Monday that investors will receive $54.20 for each share they own when the deal closes, which is expected to happen sometime this year. The stock was trading nearly $4 below the offer price Tuesday morning in New York, indicating investors see some risk the buyout won’t close as planned.
Some investors who piled into Twitter when Musk first started talking about buying the platform are now offloading their shares to secure gains made so far. Since April 1, the last trading day before Musk disclosed a significant stake in the company, the stock has risen nearly 30%. Others are waiting to see what happens, on the prospect the stock will move higher before the deal closes, or the chance that it doesn’t go through as planned.
“I locked profits in to remove my risk,” said Erik Smolinski, 31, who lives in California and runs a trading YouTube channel.
Last week, he entered three positions in deep-in-the-money long calls for Twitter in light of the Musk news. He’s now sold about 50% of the stake, but is hanging onto the rest to see how the stock trades from here. He’ll wait for the actual buyout or until the underlying stock hits the offer price of $54.20, whichever comes first.
“Just because the offer was accepted doesn’t mean everything will go smoothly,” he said. “This is a way to make money and reduce risk, while maintaining forward return potential.”
He originally took the position because of his belief in Musk and how “the stuff that the guy touches tends to do well.”
Not everyone feels the same way. The deal has been polarizing for Twitter users, with many expressing concern that Musk’s promise to ease content-moderation policies will lead to more harassment on the platform. The hashtag #RIPTwitter was trending early Tuesday.
‘Arbitrage Game’
Snir David, a 29-year-old retail trading analyst from Israel, already sold his stake on the news. He first bought his position in Twitter about a year ago when it was trading at $39, and it recently made up about 25% of his total portfolio.
“I think Elon’s purchase is a very good thing,” he said. “Only a sole owner will be able to transform the management and take the right actions for the business. His ability to do that is so much stronger, so I welcome that.”
But holding onto the shares for any longer wasn’t worth the risk for David. He said he wasn’t interested in playing the “arbitrage game.”
Indeed, there’s limited upside for those still betting on Twitter as a stock, according to Mike Bailey, director of research at wealth-management firm FBB Capital Partners.
“There could be some downside risk here if regulators block the deal or if some other problem emerges,” he said. “Long-term investors might want to look at other companies.”
Musk’s comments that he plans “to retain as many shareholders as is allowed by the law in a private company” is also likely sowing confusion. Some may have interpreted this as meaning retail investors will be able to stay in, even once Twitter is taken private. But the reality is that only the largest investors are likely to own a piece of the company after the deal closes.
“He means the big fish,” said Kim Forrest, chief investment officer at investment manager Bokeh Capital Partners, about Musk’s comments. “Normal mortals are not included. People sometimes don’t truly understand that they can’t participate as an owner once something is purchased for cash.”
That’s why Patrick Questembert, 57, sold his position. The trader, who lives in New York, offloaded all of his 20,000 Twitter shares on Tuesday morning.
“Right now it’s game over, the price is expected to crawl up to $54.20 over the next few week, barring unforeseen events,” Questembert said. “There is no option to stay invested in Twitter given this type of transaction.”
And it’s definitely not a smart move to buy Twitter shares right now, according to Max Gokhman, chief investment officer at money manager AlphaTrAI Inc.
“There’s less than 5% upside now and still a chance the deal may not close, since there are often unexpected surprises with Elon involved,” he said. “I would not consider it a good call for retail to buy in now.”
More stories like this are available on bloomberg.com.
