As Musk moves to abandon deal, Twitter faces ‘worst case scenario’
Elon Musk’s attempt to terminate his Twitter acquisition will likely force the social network into a protracted legal battle and send its stock price diving – thrusting a new level of chaos upon the firm, after months of public disputes have battered its reputation and employee morale.
In short? “This was worst case scenario for Twitter, and now it’s happened,” said Dan Ives, the managing director and senior equity research analyst covering the tech sector at Wedbush Securities.
Ives warned that Musk’s bid to walk away may make the company appear to be “damaged goods” in the eyes of other investors or potential acquirers. Twitter shares were down nearly 6% in after hours trading on Friday. Wedbush Securities projects the stock could sink to between $25 and $30 when the market reopens Monday, down more than 30% from where it closed Friday afternoon before Musk’s filing.
In a Friday evening news release, Twitter’s board threatened to “pursue legal action” to enforce the terms of the $44 billion deal Musk struck in April to buy the social network and take it private. He is required to go through with the purchase barring a major change to the business, which legal experts say is a difficult to prove.
Twitter’s board said that it was confident the company would prevail in court, but analysts warn — and employees fear — that Musk’s letter sets the stage for a turbulent period, which could carry new financial risks for the company and its workers.
The billionaire has been threatening to pull back from the deal for weeks, but Friday’s filing opens a new front in the dramatic takeover of the social network, which wields outsize influence over news coverage and politics. Musk’s lawyers have repeatedly accused Twitter of failing to turn over data to help his team confirm the number of bots or spam accounts on the social network, setting a stage for a legal battle. Meanwhile, the company maintains it has complied with all of the terms of its agreement and has turned over its “firehose,” a massive stream of data comprising more than 500 million tweets posted everyday. Legal experts say Musk’s case doesn’t meet a threshold to allow him to walk away from the deal.
Even if Twitter does prevail in recovering the deal or recouping a $1 billion breakup fee, a court battle invites new challenges. Twitter could be forced make key business metrics public, inviting questions from Wall Street about the overall health of the company, which turned its first profit in 2018 amid a major financial retooling.
After weeks of threats, employees have largely been bracing themselves for Musk to formally attempt to walk. “This has been the direction of travel for a while,” said one employee, who spoke on the condition of anonymity to candidly discuss the situation within the company. “There’s been a general lack of belief that the deal would go through as signed.”
But its arrival only exasperated many workers, who say negotiations with Musk have brought intense scrutiny to Twitter. Any stock downturn would impact employee compensation, adding to the dismay of workers who have largely bristled at the prospect of the world’s richest man taking over their company. Since Musk announced his takeover, Twitter instituted a hiring freeze and has replaced key executives.
Musk began complaining about the bot issue soon after he agreed to purchase and take the company private this spring. In a
May tweet, he said the deal was “on hold” and insisted the purchase could not “move forward” until Twitter provided further proof of its methods for detecting spam.