There is still time for investors to bet on Elon Musk's takeover of Twitter and potentially make a tidy profit on the trade. Shares of Twitter moved higher on Monday as the company agreed to take Musk's offer of $54.20 per share, but the stock closed at $51.70 per share. It is not uncommon for takeover targets to trade below an offer price even after a deal is accepted, but that does means there is still roughly 4.8% upside for an investor who buys in now and then sees the deal completed. This is often called an arbitrage trade, and it is common practice for many hedge funds and other professionals. Stocks that are takeover targets will often trade below a rumored or official offer price as traders wait to see whether the deal will be accepted and approved by regulators, and what the time frame of the deal will be. Twitter's stock actually fell slightly when Musk's price was first announced, in part because the financing was unclear and because the offer was well below the stock's recent highs. But the stock has since begun to outperform. Between Musk first offer to buy Twitter on April 14 and Friday's market close, the stock gained 6.7% while the Nasdaq Composite dropped nearly 6% during that time. That gap widened in early trading Monday. The downward trend for the broader market may have made Musk's offer too good to pass up, according to Gordon Haskett analyst Don Bilson. "Not that it was ever wildly off the mark, but if you were operating off the assumption that the board would demand $60/share and the market has since fallen 10% then $54 feels about right. That goes double if you think TWTR won't have very good things to say when it reports its Q1 results on Thursday," Bilson wrote in a note to clients. Another reason that Twitter's board may be more open to a deal now is that no other serious bidder emerged. "While Mr. Musk's efforts may ultimately fail, we believe a competing bid is unlikely given 1) how restricted the 'strategics' like GOOGL/MSFT are in M & A, 2) size of investment (at $43B+), and 3) valuation," Truist analyst Youssef Squali said in a note to clients last week. To be sure, there is still a risk that the deal could fall through and pull the stock dramatically lower, given that Musk could choose to sell his giant portion of the total shares of Twitter. Regulators also are likely to take a look at the deal, even though there are fewer obvious antitrust concerns with a private takeover deal than if a social media rival tried to buy Twitter. Finally, the timing aspect could make the trade less attractive. If the deal is completed quickly and the broader market continues to struggle, then a 4.8% return will prove to be a winner. But if the deal takes long enough for the Nasdaq and S & P 500 to rebound, then investors may regret having money tied up in an ag deal with a hard ceiling of $54.20 per share. Twitter said in a press release that it expects the deal to close this year. — CNBC's Michael Bloom to this report.
Elon Musk's Tweet displayed on a screen and Twitter logo displayed on a phone screen are seen in this illustration photo taken in Krakow, Poland on April 14, 2022.
Jakub Porzycki | Nurphoto | Getty Images
There is still time for investors to bet on Elon Musk's takeover of Twitter and potentially make a tidy profit on the trade.