Musk's Twitter Bid Turned It Into A 'Trading Sardine'; Is It Good For The Company?
Andy Hecht | Apr 26, 2022 06:15AM ET
This article was written exclusively for Investing.com
- Elon Musk's attractive bid for TWTR
- Feels he can unleash the social media platform’s potential
- Poison pill from TWTR bought time
- Musk gets what he wants
- Building an empire
There is an old joke in trading circles about trading sardines. When sardines disappeared from the waters of Monterey, California, commodity traders bid up the prices of cans of sardines to lofty levels. One day, a buyer decided to treat himself to an expensive and rare meal, opening a can and consuming the contents. He immediately became sick and told the seller the sardines were no good. The seller said, “You don’t understand. These are not eating sardines; they are trading sardines.”
The story embodies the notion that asset prices can deviate from underlying fundamentals. We have witnessed examples of company shares that became trading sardines over the past years. The most recent have been GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC), where a pack of traders and investors on social media websites have run in pools of capital holding risk positions in the stocks, pushing the prices to incredible highs, despite weak earnings and individual fundamentals.
Elon Musk’s bid for Twitter (NYSE:TWTR), along with the company’s initial response of a poison pill before ultimately approving the deal just yesterday, are likely to turn TWTR shares into the latest trading sardine, where the stock’s price will experience increased volatility, while the company’s fundamentals become a sideshow.
h2 Elon Musk's Attractive Bid For TWTR/h2Elon Musk, the notorious CEO of Tesla (NASDAQ:TSLA) who is also the founder of SpaceX, the Boring Company and other ventures, and the world’s wealthiest person, offered to buy Twitter, the leading social media company, for $54.20 per share; the deal secured yesterday is for $44 billion in cash. Musk plans to take the company private.
Source: Barchart
The chart shows that TWTR shares were below $40 per share before Musk announced his $54.20 bid. He had already accumulated around 9% of the company’s shares, before his stake was announced; after it went public chatter that he would take a seat on the board emerged though he said at the time he'd keep his ownership below the 15% level.
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However, when the board position fell apart, and discussions over his plans for the company did not agree with those of sitting board members, he decided to buy the company outright and take control away from the current board of directors.
h2 Feels He Can Unleash The Social Media Platform’s Potential/h2Musk has been a constant presence on Twitter. And lately, he has been using the platform to outline his plans for the company. On April 19, he tweeted :
Once again, the market learned a lesson with the Twitter acquisition—it is not a good idea to bet against Elon Musk.
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