Investors speculating over whether Elon Musk will complete his $44 billion acquisition of Twitter Inc sent the social media company's shares on Wednesday to their lowest level since the deal was announced two days ago.
Traders fretted that Musk may not have enough money sitting around to fund his $21 billion cash contribution and could decide against selling some of his Tesla Inc shares to come up with it.
He has backtracked before. Earlier this month, he decided at the last minute not to take up a seat on Twitter's board. In 2018, Musk tweeted that there was "funding secured" for a $72 billion deal to take Tesla private, but did not move ahead with an offer.
In addition, Musk would have to pay only a $1 billion breakup fee - a sliver of his fortune estimated by Forbes to be $240 billion - to walk away from the acquisition.
"There's a lot of headline risk over the next six months that it takes to complete the deal," said Chris Pultz, portfolio manager for merger arbitrage at Kellner Capital.
Representatives of Musk did not immediately respond to requests for comment.
Twitter shares ended trading in New York down 2.1% at $48.68, a big discount to the $54.20 deal price, implying a 62% chance of the deal being completed, according to Reuters calculations. That is a relatively low chance of deal completion, investors said, given it is unlikely that Musk, who has no other media holdings, would face antitrust scrutiny.
Tesla shares fell more than 12% on Tuesday, wiping out $126 billion in value, amid concerns Musk will have to sell shares in the electric car maker to pay for the $21 billion equity check in the Twitter deal.
Musk could calm some of the market jitters by providing more details on the source of his equity financing or bring in partners to help split the check. This, however, could introduce new risks to the deal based on the identity of these partners, some fund managers said.
Roy Behren, managing member of Westchester Capital Management, which has $5.4 billion of assets under management, said the $1 billion deal termination fee was not high enough to make Musk think twice about walking away from the deal.
"In the context of his net worth, and the size of the transaction, the fee is smaller than one would have expected," Behren said.