Here Is How Musk’s Twitter Takeover May Impact Tesla

Key Insights

• Elon Musk proposes to buy Twitter for $54.20 per share. 
• If the deal is approved, Musk will likely have to sell some Tesla shares. 
• Tesla stock is already moving lower in premarket trading due to this risk.

Elon Musk Wants To Buy Twitter

Tesla‘s Elon Musk has just offered to buy Twitter for $54.20 per share, a premium of roughly 18% to yesterday’s closing price. The potential deal gives Twitter a valuation of $43 billion.

Not surprisingly, Twitter shares are very active in premarket trading. Currently, the stock is gaining about 6% and is trading near the $49 level.

Any deal should be approved by Twitter shareholders and the company’s board, and it remains to be seen whether they will be happy to receive $54.20 per stock they own.

While Twitter stock has traded as low at $31.30 in 2022, it touched highs near the $81 level back in 2021, so shareholders may decide that Musk’s offer is too modest.

What’s Next For Twitter And Tesla?

Twitter stock is currently trading below the price offered by Elon Musk, which is usual for such situations as the deal could fail in case it does not get the necessary approvements.

Analyst estimates for Twitter have been moving lower in recent weeks, and the company is expected to report earnings of $0.8 per share in 2022 and earnings of $1.16 per share in 2023. Thus, Musk offers to buy Twitter at 42 forward P/E for 2023. This is not cheap, but, like many tech stocks, Twitter has been richly valued in recent years.

For Tesla investors, this deal is also important. If the deal goes through, Musk will have to find the cash to finance the purchase. Most likely, he will have to sell some Tesla stock to fund the deal.

The last time Musk was selling Tesla stock, the pullback in Tesla shares was material. If he starts to sell his Tesla shares again, the stock will likely find itself under pressure. In premarket trading, Tesla shares are down by about 2%, which means that traders acknowledge this risk.

It should be noted that the Twitter takeover story may be a long one as Twitter’s shareholders will likely try to get a better deal. In this light, it could remain a source of uncertainty for Tesla investors in the upcoming months.