Elon Musk’s sinking twitter deal has been a black eye for the billionaire entrepreneur whose lawyers announced on Friday that he was seeking to terminate his $44-billion takeover of the social media company.
So says a US-based market analyst who believes the entire move by the Tesla and SpaceX CEO to acquire Twitter has been a soap opera from the start.
Musk is also girding himself for a likely court battle after Twitter’s board indicated it remained committed to closing the deal and planned to pursue legal action to enforce the terms of the agreement.
Twitter’s share price has been in free-fall since the news of Musk’s attempt to walk away from the deal broke late Friday. The world’s richest person alleged in a filing to the Securities and Exchange Commission that Twitter misrepresented the number of spam bots on its platform rejecting the social media company’s claim that they only account for about 5% of its active users.
Musk’s lawyers believe twitter is in material breach of multiple provisions of the merger agreement. But Twitter Board Chair Bret Taylor indicated in a tweet that they planned to pursue legal action to enforce the agreement and expressed confidence that they would prevail.
“It’s been a black eye for Musk, the way that he’s handled this. It’s been just a soap opera from the beginning, since April. It always really was something that really never made sense to investors, why he was going to go after Twitter at $44 billion if he’s using this as a scapegoat, got cold feet, those will be the debates. But I think it’s going to add to just the controversy of Musk. But there is no doubt he does not come out smelling like roses here. And I think this has really been just a disastrous scenario, at least for Twitter,” says Managing Director of Wedbush Securities, Dan Ives.
In addition to questions around bots, Musk also claims Twitter fired top executives and about one-third of the talent acquisition team, breaking their obligation to preserve the material components of its current business organisation.
“Those are going to be hard arguments to make. So he’s going to bear a burden in court to prove to the judge that these are going to be sufficient for him to walk away. With respect to the bots, his argument on the bots is twofold. One, that he thinks the bots are more than 5%, as Twitter has disclosed in its SEC filings, and that as a result, he says, constitutes a material adverse effect. That would be a thing that it’s a condition that would permit him to walk away from the transaction without paying a fee. That’s, I think, really debatable. His argument there is very pretextual, I think. His second argument with respect to the bots is that he requires additional information about the bots in order to communicate with his financing parties, and that he argues that Twitter has not given him enough information. Now there’s been some back and forth that is documented in this letter, and that’s really a question for the court,” says Professor Brian Quinn of Boston College of Law.
The Twitter share price is currently trading at below $34, and well below the $54.20 per share offered by Musk back in April. He agreed to pay $1 billion if he backed out, giving Twitter greater impetus to hold Musk to the original agreement.
“Twitter, probably, it’s going to be in freefall, $25 to $30 we may guesstimate based on Monday where it opens. Going to be a lot of pressure because now it’s really the Musk bid that was keeping it where it is. Now I think for Tesla, you’ll see some relief rally. This has been about a $100 sort of overhang on the stock and they’ll recoup some of those gains but a lot of twists and turns ahead. This is going to be a Game of Thrones court battle between Musk and the Twitter board,” Dan Ives explains.
The consensus here is that the decision to walk away from the deal is likely to result in a protracted legal battle. Disputed mergers and acquisitions that land in the Delaware Court of Chancery often end up with companies re-negotiating deals or with the acquirer paying a settlement to walk away rather than the transaction being completed. What’s more is that some analysts believe Musk was being stretched too thin and that investors want to see him refocus his energy on Tesla and SpaceX and leave behind the distraction that acquitting Twitter had become.
