Pre-market stocks: This is what doomed Elon Musk’s Twitter deal

The S&P 500 was up 14% and had yet to enter a bear market. The war in Ukraine and inflation fears had prompted investors to sell, but sentiment had not collapsed. And Tesla, the electric car maker that is Musk’s main source of wealth, was poised to report record profits.
In this climate, Musk’s offer to pay $44 billion for Twitter, snapping up shares he doesn’t own for $54.20 apiece, seems way too high — and now, unsurprisingly, he wants out.

“The market has changed dramatically since April,” Daniel Ives, strategist at Wedbush Securities, told me.

Musk took action late Friday to end his deal to buy Twitter, saying the company was “in material breach of several terms” of the original agreement.

For weeks, Musk has expressed concerns, without any apparent evidence, that there are more bots and spam accounts on the platform than Twitter has publicly stated. Analysts speculated that the fight was an attempt to create a pretext to get out of a deal that now seemed too expensive.

Musk’s offer represented a 54% premium to Twitter’s price before Musk began increasing his stake in late January, and a 38% premium before his holdings were revealed 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 offer price.

On the radar: Twitter shares would likely do a lot worse if Musk hadn’t played his game. Investors ditched fast-growing tech stocks — which are less attractive when interest rates rise — and companies social media have been hit hard.

Facebook’s Meta has seen its shares plunge almost 50% since the start of the year. Snapchat is 68% lower.

So there is You’re here (TSLA) stock, which Musk planned to rely on in part to fund the deal. It has also fallen sharply, falling 30% since early April.

“The Twitter fiasco had a major overhang on Tesla shares and it’s Musk’s golden child,” Ives said.

Musk doesn’t call his fickleness buyer’s remorse. But Ives thinks it’s clear that was a major factor.

What happens next: The stage is set for a long and dramatic legal battle. Twitter said it intended to force Musk to close the sale — and it’s not hard to see why. Twitter stock was down more than 5% in premarket trading on Monday. With the court-related takeover, Ives thinks it could drop another 30% to $25.

Covid fears and new tech crackdown hit Chinese stocks

Chinese stocks fell on Monday as the threat of new Covid restrictions and a new regulatory offensive against big tech companies undermined investor confidence.

The latest: Casinos in Macau’s gaming hub have been ordered to close for the first time since February 2020 due to a Covid outbreak, sending shares of their operating companies plummeting, my colleague reports from CNN Business, Laura He. Fears of further shutdowns in Shanghai have also undermined the broader Chinese market.

Adding to the pessimistic mood, Chinese tech stocks plunged after the country’s antitrust regulator imposed new fines on a group of A-list companies, raising concerns that Beijing does not plan to go easier on the the country’s embattled internet giants.

Senior government officials recently signaled relief from President Xi Jinping’s deadly tech crackdown and pledged support for the internet industry. The change in rhetoric fueled hopes that Beijing would back private businesses as it tries to shore up the country’s economy.

But on Sunday, the State Administration for Market Regulation said it had issued fines to tech companies including Tencent, Alibaba and Lenovo, saying they had failed to properly report merger activities and acquisition.

Alibaba shares fell 6% in Hong Kong on Monday. Tencent fell 3%. The Hang Seng Tech index fell around 4%.

My thought bubble: There was renewed enthusiasm for Chinese stocks last month as investors bet the worst 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 ex-China saw capital outflows of $19.6 billion as recession anxiety dominated.

But assuming Xi’s policy of eliminating Covid transmission was over was always going to be a gamble. So was the prediction that the government’s frozen relationship with the private sector had thawed.

Will a crucial Russian gas pipeline ever come back online?

Ever since the West hit Russia with deadly sanctions over its invasion of Ukraine, a chilling question has arisen: what if Russia cut off gas to Europe, a nightmarish scenario that would strain the economy of the region?

That possibility is getting a boost as maintenance on the Nord Stream 1 gas pipeline between Russia and Germany begins on Monday. Officials and market watchers have expressed concern that gas flows will restart once the repair period ends in 10 days.

“While this was a routine procedure that attracted little attention, there are concerns this time that Russia may not resume gas shipments afterwards,” Commerzbank analysts said in a statement. note to customers.

Remember: Last month, Germany – Europe’s biggest economy – said it was “in a gas crisis” after Gazprom, Russia’s state gas company, cut 60% flows passing through the Nord Stream 1 gas pipeline. Gazprom blamed the move on the West’s decision to withhold vital turbines due to sanctions, but it was seen by politicians in Europe as a shot in the bow.

“Anything can happen. The gas might flow again, even more than before. Nothing might come at all,” German Economy Minister Robert Habeck said on Sunday. “Honestly, we always have to prepare for the worst and work a little bit for the best.”

Europe is rushing to wean itself off Russian energy, but reducing its dependence on gas is particularly difficult. The region received 45% of its natural gas imports from Russia last year, and it is now rushing to fill storage facilities before winter.

Benchmark natural gas prices in Europe hit their highest level since March last week. They could continue to climb in the coming days, intensifying pressure on governments to come up with contingency plans.

“Concerns are likely to push gas prices further up until it is known what will happen to gas supplies once maintenance work is completed,” Commerzbank said.

Next

New York Federal Reserve Chairman John Williams speaks at a Libor transition conference at 2 p.m. ET.

Coming tomorrow: PepsiCo (DYNAMISM) reports earnings ahead of a series of bank results later this week.

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