By Greg Roumeliotis

(Reuters) – Twitter Inc (NYSE): Shares plunge to lowest point since social media giant Elon Musk bought it for $44 billion April 25, raising doubts about whether Musk will try to renegotiate.

When Twitter shares fell below $46.75, the implied likelihood of the deal being closed at the stipulated price dropped to 50% Tuesday. This is half the difference between the deal price, and the share price before Musk disclosed that he owned a stake in social media company.

With a market valuation of $36billion, the shares were closed at $47.26

The stock did not react to the announcement that Musk would lift the ban placed on ex-President Donald Trump’s account via Twitter.

The collapse of technology stocks has led to Twitter shares plummeting along with it. Investors worried about inflation, and the possibility of a slowdown. Short sellers Hindenburg Research have wondered if Musk will try to lower the price of a deal.

Musk has not stated that he will reopen negotiations. His representatives also declined comment.

These are the answers to key questions.

MUSK WANT THERE TO BE A RENEGOTIATION OF THE DEAL

Forbes estimates Musk’s net worth at almost $240 billion, but most of it is held in Tesla shares (NASDAQ:) Inc., Musk’s electric car manufacturer.

Musk is already looking to raise money to finance the acquisition of Twitter. Musk sold Tesla shares worth $8.5 billion and obtained a $12.5 million margin loan against Tesla stock. After bringing in other co-investors, he reduced the margin loan from $6.25 to $6.25billion. Musk indicated in a regulatory filing that more financing may be sought for the deal.

Musk claimed that he is not concerned about the economics behind buying Twitter. But some investors suspect the 27% plunge in Tesla shares following Musk’s disclosure of his ownership was partly due to fears that he will have to sell additional shares. If Musk is able to negotiate a lower purchase price, Tesla stock will be less under pressure. If Musk becomes concerned about paying too much, some co-investors might encourage him to continue.

HOW CAN MUSK NEGIGATE A LOWER PRICE

If Twitter’s board does not agree to reopen negotiations, Musk could threaten to walk out of the agreement. Musk is legally obligated by contract to pay $1 billion in breakup fees, but Twitter could sue for more damages to recover that amount or force Musk to sign the agreement.

A lot of precedent exists for renegotiations. In 2020’s COVID-19 pandemic, several companies were able to re-price their agreements and deliver a shock economic impact.

One instance was when LVMH, a French retailer threatened to end a deal. Tiffany & Co (NYSE:). U.S. jewel retailer Jeweler agreed to lower its acquisition price by $425 Million to $15.8 Billion.

Simon Property Group Inc. (NYSE:), America’s largest mall operator, was able to lower its price to purchase a controlling share in Taubman Centers Inc. (NYSE:) Inc. by 18% to $2.65billion.

Are there risks to attempting to renegotiate?

It is not certain that Musk’s strategy will work and could even end up costing him more.

Musk must convince Twitter that he will walk away. There are also legal obstacles, such as a clause requiring Musk to perform a specific task.

Losing such an instance means that acquirers are unlikely to be forced into any acquisition. However, target companies may seek financial relief in order to cover the cost of the aborted deal.

Channel Medsystems Inc is a medical technology company that has sued Boston Scientific Corp (NYSE.:) to stop it from walking away from its $275 million acquisition. A judge in 2019 ruled that the deal should be closed and Boston Scientific paid Channel Medsystems an undisclosed settlement.

Sometimes, acquirers looking to get out of a merger deal use “material adverse effects” clauses. This is because they argue that the target company has suffered significant damage. As with many mergers in recent years, the Twitter deal agreement does not permit Musk to leave because of a declining business environment. For example, a decrease in advertising demand or because Twitter shares are falling.

Musk waived his rights to conduct due diligence in order to negotiate the Twitter deal. He was trying to convince the company to take his “best” and final offer. It makes it difficult for Musk to claim that Twitter misled his.