In a statement on Monday, Hindenburg Research concluded the deal’s $1-billion breakup fee was not a sufficient enough deterrent given the heady cocktail of poor first-quarter results and inflated user numbers for the social media platform, as well as an ongoing market crash in tech stocks.

That gives the Tesla CEO an opening to pressure Twitter’s board into accepting more favorable terms by threatening to abandon the bid entirely and let the share tank, Hindenburg said.

“We believe that if Elon Musk’s bid for Twitter disappeared tomorrow, Twitter’s equity would fall by 50% from current levels,” it wrote, adding it was now actively shorting the social media company. “Consequently, we see a significant risk that the deal gets repriced lower.”

The centibillionaire responded with a cryptic non-statement that revealed little as to whether he disagreed with the underlying analysis: “Interesting,” he posted via Twitter. “Don’t forget to look on the bright side of life sometimes!” 

Hindenburg Research is probably best known for blowing the whistle on Nikola Motor CEO Trevor Milton’s fraudulent attempt to pass off his hydrogen fuel cell truck rolling downhill as being driven by his own proprietary propulsion technology. Milton is now awaiting trial on criminal charges he lied to investors. 

Billions potentially saved

Thanks to Musk’s Twitter bid, approved unanimously by the board late last month and announced by chairman Bret Taylor, its stock has succeeded in largely decoupling itself from the broader tech market. The share price is now essentially little more than a barometer of investor confidence in Musk’s deal going through at the $54.20 offer.

Twitter has climbed 22% since April 1, before news broke of Musk’s 9.2% stake purchase, to finish Monday’s session at $47.96. While that indicates the market still sees a material execution risk for the deal, it has proved far more resilient than the broader tech sector. This outperformance is not because of strong fundamentals, but solely down to the existence of Musk’s bid propping up the price.

By comparison, the Nasdaq Composite has lost nearly a fifth of its value over the same period of time. 

Pricing a similar drop into the $44 billion offer would mean Musk could lower the cost of the deal by a good $7 billion after paying the breakup fee. Even a conservative 10% reduction to the bid price to reflect prevailing market conditions would still save him billions. 

Considering that the current deal would encumber Twitter’s balance sheet with some $13 billion in debt, or nearly nine times its annual underlying cash earnings (Ebitda), Hindenburg Research argued a lower price with a less aggressive financing profile would furthermore put the acquisition on more solid financial footing.

“The heavy debt load would make it more challenging to pursue Musk’s goal of reducing Twitter’s reliance on advertising, which currently comprises the vast majority of its revenue,” it wrote.

‘Incredible leverage’ to renegotiate

Importantly, Musk is also not the only one fronting capital for the deal—and therefore not the only one calling the shots either. 

In order to avoid liquidating any more of his Tesla stake or pledging too many shares as collateral, he recently enlisted help from Wall Street whales to finance the deal with over $7 billion of their own money. 

Saudi billionaire Prince Alwaleed bin Talal, venture capital firms Sequoia Capital and Andreessen Horowitz, as well as crypto exchange Binance were just a few to be tempted by heady growth targets such as a fivefold increase in Twitter’s annual revenue by 2028.

These investors would likely advocate more favorable terms should they see any opening to extract meaningful concessions, according to Hindenburg Research.

Since the Tesla CEO’s current offer was “vastly superior to alternatives,” the short-seller warned there was little alternative for Twitter’s board than to accept any revised terms—a situation that presents a key risk to existing shareholders.

“Musk has incredible leverage to renegotiate should he choose to,” Hindenburg Research concluded.