Has there ever been a company held hostage by tweets like the actual company that created them — Twitter Inc TWTR?
The saga added another chapter on Monday, making it the PreMarket Prep Stock of the Day.
The Beginning: Before the turmoil began back on April 1, Twitter ended that session at $39.31. Over that weekend, it was made public that Tesla Inc TSLA CEO Elon Musk had an interest in the company, and the stock rallied by $10.66 to $39.97, or 27%. Adding to the momentum of the rally was that investors immediately began to speculate that he would attempt to buy the entire company.
Interestingly, the initial two-day surge took the issue no higher than $54.57. After several days of uncertainty regarding Musk’s true intentions, the issue backed off from the $50 area.
Over the next few weeks, Twitter shares bounced between $44 and $50.
Investors Were Right: The anticipatory and aggressive investors who kept piling into Twitter shares were correct as to Musk’s true intentions.
On April 14, Musk made an offer to buy the entire company for $54.20 per share. That instigated a rally of $3.37 to $48.45, or 7.5%. Obviously, there was considerable hesitation over whether that deal would actually occur, as the issue never came close to the takeout price.
You Can Have It: Over the weekend of April 22, the Twitter board accepted Musk's $54.20 offer. On the following Monday, the issue peaked at $52.29 and on Tuesday at $51.62.
The close on that Monday ($51.70) was the highest since Musk became involved in the company and that was still more than $2 shy of the actual takeover price.
Once again there was a sign of extreme skepticism that the deal was going to happen. While investors tried to gauge Musk’s next move or tweet, the issue was under selling pressure.
Musk Changes His Mind: Musk submarined shareholders of the issue while waiting for the deal to take place when he tweeted after the close on May 12 that he needed more information on the company.
The information was the number of accounts vs. fake accounts on the platform. That instigated a decline of $4.36 or 9.7%, from $45.08 to $40.72, basically right back to where it was before Musk showed interest in the company.
Sellers continued to take their loss from Musk’s tweets and pushed the issue on May 24 to $35.40 and have since rebounded to end last week at $40.16.
Backing Away Further During PreMarket Prep: Just before the conclusion of Monday’s show, it was reported that Musk sent a letter to Twitter reiterating his request for certain data and information necessary to facilitate the evaluation of spam and fake accounts.
In addition, he said the company has breached obligations under the merger agreement by not offering up the requested information.
From a fundamental point of view, PreMarket Prep co-host Dennis Dick stated the plain truth. “Musk realizes he overpaid for the company and is trying to negotiate a lower price,” he said.
From a technical point of view, for those investors anticipating some sort of deal taking place, but at a lower price point, $38-$38.50 is a potential point for a long entry. That would be a discount of roughly $2-$2.50 from Friday’s closing price of $40.16.
TWTR Price Action: After a lower opening price ($38.16 vs. $40.16), the issue immediately bottomed at $37.91 ultimately ended the session 1.49% lower at $39.56.
The discussion on the issue from Monday’s show can be found here:
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