Twitter Inc shares have dropped to their lowest level since the social media company agreed to sell itself to Elon Musk for $44 billion on April 25, raising concerns about whether Musk will try to renegotiate the deal.

When Twitter shares fell below $46.75 on Tuesday, the implied probability of the deal closing at the agreed price fell below 50% for the first time. That is halfway between the deal price and the share price before Musk revealed his ownership of the social media company on April 4.

The stock closed at $47.26, valuing the company at $36 billion.

While news that Musk would lift a ban on former President Donald Trump’s Twitter account was politically significant, it did not move the stock.

Twitter shares have fallen in tandem with the broader decline in technology stocks, as investors worry about inflation and a possible economic slowdown. Some investors, including short-seller Hindenburg Research, have speculated that Musk might try to negotiate a lower deal price before closing.

Musk has made no indication that he intends to reopen negotiations, and his representatives have declined to comment on the matter.

According to Forbes, Musk has a net worth of nearly $240 billion, but the majority of his fortune is invested in Tesla Inc, the electric car company he leads.

Musk has already begun raising funds to fund the acquisition of Twitter. He sold $8.5 billion in Tesla stock and obtained a $12.5 billion margin loan secured by his Tesla stock. After bringing in co-investors, he reduced the margin loan to $6.25 billion last week. Musk stated in a regulatory filing that he may seek additional funding for the deal.

While Musk has stated that he is unconcerned about the economics of purchasing Twitter, some investors believe that the 27 percent drop in Tesla shares since Musk revealed his stake is due in part to concerns that he may have to sell more shares. As a result, if Musk can negotiate a lower acquisition price, Tesla’s stock will be under less pressure. Some co-investors may encourage him if they are concerned about overpaying.

Musk can threaten to walk away from the deal if Twitter’s board refuses to reopen talks. He is contractually obligated to pay a $1 billion breakup fee, but Twitter would have to sue to recover more in damages or force Musk to complete the deal.

There is ample precedent for renegotiation. When the COVID-19 pandemic broke out in 2020, causing a global economic shock, several companies repriced agreed-upon acquisitions.

In one case, French retailer LVMH threatened to cancel a deal with Tiffany & Co. The jewelry retailer in the United States agreed to reduce the acquisition price by $425 million to $15.8 billion.

Simon Property Group Inc, the largest mall operator in the United States, was able to reduce the price of a controlling stake in rival Taubman Centers Inc by 18% to $2.65 billion.

There is no guarantee that the strategy will succeed, and it may end up costing Musk more money.

Musk would first have to persuade Twitter that he was serious about leaving. Then there are legal stumbling blocks, such as a “specific performance” clause that the social media company can use to persuade a judge to order Musk to complete the deal.

Acquirers who lose such a case are almost never forced to complete an acquisition, but target companies can seek monetary compensation for the cost of the abandoned deal.

Medical technology firm Channel Medsystems Inc, which sued Boston Scientific Corp for trying to back out of their $275 million deal, is one example of a company that has fought acquirers in court. A judge ruled in 2019 that the deal should be completed, and Boston Scientific paid an undisclosed settlement to Channel Medsystems.

Acquirers looking for a way out may invoke “material adverse effect” clauses in their merger agreement, claiming that the target company has been significantly harmed. However, as with many recent mergers, the language in the Twitter deal agreement does not allow Musk to walk away due to a deteriorating business environment, such as a drop in advertising demand or a drop in Twitter’s stock price.

Musk also waived his right to conduct due diligence when negotiating the Twitter deal, hoping to convince the company to accept his “best and final” offer. This makes it more difficult for him to claim in court that Twitter misled him.

Can Elon Musk back out from this deal?

His tweets the day before fed into suspicion that he may back out of the deal.

He has already agreed to terms. In addition to the $1 billion breakup fee, Twitter might sue Musk in court to force him to pay for the deal if his debt funding remains intact, as stipulated in the agreement. (This is what happened when Tyson Foods tried to back out of a deal in 2001.)

Musk might be hoping to get a lower price by stating that a material adverse change has occurred, similar to what LVMH did in acquiring Tiffany, and stating that financial damage had occurred from the pandemic. LVMH ended up getting a lower price for Tiffany.

As Musk pursued the Twitter deal in a hurry and with a low level of diligence, he is not likely to find a sympathetic judge, although Musk has already told investors he expects Twitter to quintuple its revenue, which would make Twitter a surprisingly good investment at $44 billion.

According to Professor Brian Quinn, a professor at Boston College Law School who specializes in corporate mergers, “He’s already signed on the dotted line” and the seller will not deal with someone who wants to negotiate a lower price after buying a house.

Also Read: 5 Things Elon Musk Is Set To Change