Twitter shares slip as Elon Musk and social media company line up for legal fight
Shares of Twitter fell more than 9% on the first day of trading after billionaire Elon Musk said he was dropping his US$44 billion bid for the company and the social media platform crashed. was committed to challenging Musk in court to enforce the deal.
Twitter is now preparing to sue Musk in Delaware, where the company is incorporated. While the outcome is uncertain, both sides are preparing for a long legal battle.
Musk alleged on Friday that Twitter failed to provide enough information about the number of fake accounts on its service. However, Twitter said last month that it was providing Musk with a “fire hose” of raw data from hundreds of millions of daily tweets when he raised the issue again after announcing that he would buy the social media platform.
Twitter has said for years in regulatory filings that it believes about 5% of accounts on the platform are fake.
But on Monday, Musk continued to taunt the company, using Twitter, over what he described as a lack of data. Additionally, Musk also alleges that Twitter breached the acquisition agreement by firing two senior executives and laying off a third of its talent acquisition team.
WATCH | How Elon Musk’s deal to buy Twitter sparked a free speech debate:
Musk has agreed to a US$1 billion severance fee as part of the takeover deal, although it appears Twitter CEO Parag Agrawal and the company are preparing for a legal battle to force the sale .
“For Twitter, this fiasco is a nightmare scenario,” Wedbush analyst Dan Ives, who tracks the company, wrote on Monday. He said the result would be “an Everest-like climb for Parag and Co.”, given concerns over employee morale and retention, advertiser concerns and other challenges.
The sale of Twitter shares pushed the stock price below US$34, a far cry from the $54.20 Musk agreed to pay for the company. This suggests that Wall Street has very serious doubts about the continuation of the agreement.
Many legal and business experts think Twitter probably has a stronger case.
Morningstar analyst Ali Mogharabi noted that Twitter has described its estimate of fake accounts and spam for years in regulatory filings while explicitly noting that the number may not be accurate given the use of data samples and their interpretation.
Given current market conditions, Mogharabi said, Twitter may also have a strong argument that the layoffs and layoffs of the past few weeks represent “a normal course of business.”
“Many tech companies have begun to control costs by reducing headcount and/or delaying hiring employees,” he said. “Twitter employee resignations cannot be attributed with certainty to a change in the way Twitter operates since Musk’s offer was accepted by the board and shareholders.”
Tech industry analysts say Musk’s interlude leaves behind a more vulnerable company with demoralized employees.
“With Musk officially withdrawing from the deal, we believe the business outlook and stock valuation are in a precarious position,” wrote CFRA Research analyst Angelo Zino. “[Twitter] will now have to go about it as a standalone business and deal with an uncertain ad market, a damaged employee base, and concerns about fake account status/strategic direction.”
The uncertainty surrounding who will run Twitter could lead wary advertisers to cut back on spending on the platform, Mogharabi said.
But the drama surrounding the deal, he added, will also attract new users to the platform and increase engagement, especially given the upcoming US midterm elections. That, he said, might convince advertisers to cut a little less.
In the long term, he said, “we believe Twitter will remain one of the top 5 social media platforms for advertisers.”