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Elon Musk is playing an old and dangerous game on Twitter

Speculation is high that Musk will either back out from the deal or seek a lower valuation than the $54.20 a share he had originally proposed for the acquisition. (Photo: Reuters)Premium
Speculation is high that Musk will either back out from the deal or seek a lower valuation than the $54.20 a share he had originally proposed for the acquisition. (Photo: Reuters)

  • Musk might back out of the Twitter deal. Or he might go ahead, if he gets a bargain deal. Either way, a little bird tells us that market regulators have a big lesson to learn on the harm chirruping by big social media influencers can do to ordinary investors

The government announces a 15% anti-dumping duty on a commodity, its price goes up in the domestic market, and the stock price of the company that makes the product jumps. Suppose, before the duty announcement, the concerned minister’s daughter-in-law’s brother had purchased a large number of the company’s shares and sold them after the stock price had reacted, how would the world react? #InsiderInformation and #MarketManipulation would trend on Twitter.

Suppose news comes out that a middling company is about to be acquired by a turnaround superstar, its share price goes up, the takeover news turns out to be a false alarm, the price falls and it turns out whoever had put out the news had made a neat pile shorting the stock (a short sale is one in which you sell a stock you do not have, expecting the price to fall by the time you have to make delivery of the shares – you have sold when the price was high and buy the shares at a lower price to make good on the delivery, the difference between the selling and buying prices being your profit). This, too, would transparently qualify as market manipulation.

What if this sort of a thing is done by a social media star, like Elon Musk, who has 93 million followers on Twitter (23% of them might be bots, according to some estimates). Musk announced his intent to buy Twitter, valuing the company at $44 billion, at $54.20 a share (in American pop culture, 420 is a reference to cannabis, and Musk likes his stoner cred). Twitter shares traded at $39-40 at end-March, early April. After Musk announced that he held a 9% stake in Twitter on 4 April, the stock jumped to more than $50 a piece.

Since then, Musk has been tweeting conditions and second thoughts, the latest being Twitter having to prove that automated accounts constitute less than 5% of its users. Twitter’s price has sunk to just above $38. Speculation is high that Musk will either back out from the deal or seek a lower valuation than the $54.20 a share he had originally proposed for the acquisition. The knock the share price has taken, following his backtracking, itself pressures the Twitter board to accept a lower valuation.

In India, we celebrate unity and diversity. The Creator, Preserver and Destroyer of the universe are individually worshipped and folded, with a deft roll of the metaphysical pin, into one transcendental entity. This might be fine at the cosmic level. But, in the stock market, is it okay, in the age of meme stocks, for one individual to play creator, preserver and destroyer of value, particularly when he stands to make financial gain out of such divine licence?

Musk does not carry a lot of loose change in his crypto wallet. His wealth is in his Tesla stock. He has to sell Tesla shares to finance his Twitter acquisition. Tesla shares have tanked at this prospect. China, where Tesla has a major production centre and hopes to have its largest market, looks askance at Twitter’s permissive stance on large-scale China-bashing on the platform. Politics in the US is about to turn vicious, particularly on abortion. Twitter will be a battleground and target in the process. There are good reasons for a businessman not to push himself into the line of fire.

Musk might back out of the Twitter deal. Or he might go ahead, if he gets a bargain deal. Either way, a little bird tells us that market regulators have a big lesson to learn on the harm chirruping by big social media influencers can do to ordinary investors, who only worship one or more members of the holy trinity but do not try to play one, leave alone all three.

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