The S&P 500 was 14% higher and had not yet entered a bear market. The war in Ukraine and inflation concerns had sent investors into sell mode, but sentiment did not collapse. And Tesla, the electric car maker that is the main source of Musk’s wealth, was about to announce record earnings. In this climate, Musk’s offer to pay $44 billion for Twitter, snapping up shares he doesn’t own at $54.20 apiece, seems too high — and now, not surprisingly, he wants out.
“The market has changed dramatically since April,” Daniel Ives, strategist at Wedbush Securities, told me.
Musk took steps late Friday to end his deal to buy Twitter, claiming the company was “in material breach of multiple provisions” of the original agreement.
For weeks, Musk has expressed concern, with no visible evidence, that there are more bots and spam accounts on the platform than Twitter has publicly said. Analysts speculated that the fight was an attempt to create a pretext to exit a deal that now appears overpriced.
Musk’s offer represented a 54% premium over Twitter’s price before Musk began building up his stake in late January, and a 38% premium before his holdings were disclosed in April.
In early July, Twitter shares were trading at just $38.23, down nearly 12% year-to-date and nearly 30% below Musk’s bid price.
On the radar: Twitter shares probably would have fared much worse if Musk hadn’t made his play. Investors shunned fast-growing tech stocks — which are less attractive when interest rates rise — and social media companies were hit hard.
Shares of Facebook’s Meta have tumbled nearly 50% since the start of the year. Snapchat is 68% lower.
Then there’s Tesla ( TSLA ) stock, which Musk planned to rely on in part to finance the deal. It has also declined sharply, falling 30% since the start of April.
“The Twitter fiasco had a big impact on Tesla stock, and it’s Musk’s golden child,” Ives said.
Musk doesn’t call his fickleness buyer’s remorse. But Ives thinks it’s clear it’s a major factor.
What happens next: The stage is set for a long and dramatic legal battle. Twitter has said it intends to force Musk to end the sale — and it’s not hard to see why. Shares of Twitter fell more than 5% in premarket trading on Monday. Once the acquisition is tied up in court, Ives thinks it could fall another 30% to $25.
Covid fears and new tech crackdowns hit Chinese stocks
Chinese shares fell on Monday as the threat of new Covid restrictions and a renewed regulatory offensive against major tech companies eroded investor confidence.
The latest: Casinos in gambling hub Macau have been ordered to close for the first time since February 2020 due to the Covid outbreak, sending shares of their operating companies tumbling, my CNN business colleague Laura He reports. Fears of further lockdowns in Shanghai also undermined the broader Chinese market.
Adding to the doldrums, Chinese tech stocks tumbled after the country’s antitrust regulator slapped fresh fines on a group of A-list companies, sparking concerns that Beijing plans to go easy on the country’s embattled internet giants.
Senior government officials recently signaled relief from President Xi Jinping’s heavy-handed tech crackdown and pledged support for the internet sector. The shift in rhetoric has fueled hopes that Beijing will support private business as it tries to prop up the country’s economy.
But on Sunday, the State Administration for Market Regulation said it had fined tech companies including Tencent, Alibaba and Lenovo, alleging they failed to properly report merger and acquisition activities.
Alibaba shares sank 6% in Hong Kong on Monday. Tencent fell 3%. The Hang Seng Tech index fell about 4%.
My thought bubble: There was a resurgence of enthusiasm for Chinese stocks last month as investors bet that the worst of Covid restrictions had passed and sought to take advantage of attractive prices.
The Institute of International Finance reported $9.1 billion in inflows into Chinese stocks in June. Emerging markets, excluding China, saw $19.6 billion in outflows as recession anxiety dominated.
But to assume that Xi’s policy of eliminating Covid transmission was over was always going to be a risky bet. So was the prediction that the government’s frosty relationship with the private sector had thawed.
Will a key Russian gas pipeline ever return?
Ever since the West imposed harsh sanctions on Russia following its invasion of Ukraine, a frightening question has arisen: What if Russia cut off gas to Europe, a nightmare scenario that would put enormous strain on the region’s economy?
That possibility looms large as maintenance on the Nord Stream 1 gas pipeline from Russia to Germany begins Monday. Officials and market watchers have expressed concern over whether gas flows will resume once the repair period ends in 10 days.
“Although it was previously a routine procedure that attracted little attention, this time there are fears that Russia will not resume gas supplies afterwards,” Commerzbank analysts said in a note to clients.
Remember: last month Germany – Europe’s largest economy – said it was in a “gas crisis” after Gazprom, Russia’s state gas company, cut flows through the Nord Stream 1 pipeline by 60%. Gazprom blamed the move on the West’s decision to shut down vital turbines because of sanctions, but it was seen by politicians in Europe as a shot in the arm.
“Anything can happen. It is possible that the gas will flow again, even more than before. It is possible that nothing will come at all,” Robert Habeck, Germany’s economy minister, said on Sunday. “Honestly, we always have to prepare for the worst and work a little bit for the best.
Europe is racing to wean itself off Russian energy, but reducing dependence on gas is particularly difficult. The region received 45% of Russia’s natural gas imports last year and is currently rushing to refill storage ahead of winter.
Benchmark natural gas prices in Europe rose to their highest level since March last week. They could continue to rise in the coming days, increasing pressure on governments to develop contingency plans.
“The concerns are likely to push the gas price even higher until it becomes clear what will happen to gas supplies after the maintenance work is completed,” Commerzbank said.
Next up
New York Federal Reserve President John Williams speaks at a conference call on the transition from Libor at 2pm ET.
Stay tuned tomorrow: PepsiCo ( PEP ) reports earnings ahead of a slew of bank results later this week.
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