What Happened: Neither party has so far asked to put the lawsuit filed in the Delaware Chancery Court on hold, prompting Judge Kathaleen McCormick to rule on Wednesday that the five-day trial, scheduled to begin on Oct. 17, is on track. Shares of Musk’s flagship electric vehicle business Tesla Inc. TSLA came under significant selling pressure amid the development.
Tesla shares will likely continue to underperform as long as Musk is tightlipped about whether he has to sell more shares to finance the Twitter deal, Future Fund analyst Gary Black said.
The analyst said that the EV maker’s stock could get a reprieve if the banks that have given commitment for $12.5 billion in financing pull out. He added that this would allow Musk to walk away from the deal by paying a termination fee of $1 billion.
If that happens, Black expects Tesla shares to jump 5-10% and Twitter shares to crash to the mid-$30s.
Wedbush analyst Daniel Ives echoed the same sentiment.
“Front and center here could be the condition out of the Musk agreement that the deal closing was pending the receipt of the necessary $12.5 billion debt financing,” Ives said.
Why It's Important: Ives, however, said the financiers, led by Morgan Stanley MS, are cemented to the Twitter debt deal. They have no way out despite the “very tough debt markets” seen currently.
“We do not see this debt situation falling apart and thus giving Musk 'a way out' of the Twitter deal with a minimal breakup fee despite the noise,” the analyst said.
Ives said he continues to believe the deal will get done smoothly despite the noise.
Black, meanwhile, said the banks can’t just walk away just because they have to offer yields so high that they lose hundreds of millions of dollars.
“The commitment for the 7-bank consortium led by Morgan Stanley appears iron-clad — there is little the banks can do to get out of their $13B commitment,” he added.
Price Action: Twitter shares closed Wednesday's session down 1.35% at $51.30 and Tesla lost 3.46% to $240.81, according to Benzinga Pro data.
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