Looming Musk-Twitter Legal Battle Hammers Company Shares

NEW YORK (AP) — Twitter shares fell more than 11% on its first day of trading after billionaire Elon Musk said he rejection his $44 billion offer for the company and social media platform promised to challenge Musk in court to uphold the deal.

Now Twitter is preparing to sue Musk in Delaware, where the company is registered. Until the result is clearboth parties are preparing for a lengthy legal battle.

On Friday, Musk said Twitter did not provide enough information about the number of fake accounts on its service. Twitter responded in a weekend letter released Monday that his “purported termination is invalid and wrongful” and that the company continues to provide the information it has “reasonably requested.”

Last month, Twitter said it was providing Musk fire hose or raw data on hundreds of millions of daily tweets.

For years, the company has stated in regulatory filings that it believes about 5% of accounts on the platform are fake. But on Monday Musk continued to mock the companyusing Twitter due to what he called a lack of data. In addition, Musk also alleges that Twitter violated the acquisition agreement when it fired two top executives and fired a third of its talent team.

Elon Musk, CEO of Tesla, stands in the Tesla Gigafactory foundry during a press conference.
Elon Musk, CEO of Tesla, stands in the Tesla Gigafactory foundry during a press conference.

Patrick Plule/photo of the alliance via Getty Images

Musk agreed to a $1 billion commission as part of the buyout agreement, although it appears Twitter CEO Parag Agrawal and the company are preparing for a legal battle to secure the sale.

“For Twitter, this fiasco is a nightmare scenario,” Wedbush analyst Dan Ives, who follows the company, wrote on Monday. He said the result would be “a mountain climb like Everest for Parag & Co.” given concerns about employee morale and retention, advertiser concerns, and other concerns.

Twitter’s stock selloff sent the share price below $34, a far cry from the $54.20 Musk agreed to pay for the company. This suggests that Wall Street has very serious doubts that the deal will go through.

Many experts in the legal and business sectors believe that Twitter probably has a better reason.

Morningstar analyst Ali Mogarabi noted that Twitter has been describing its assessment of fake and spam accounts for years in regulatory reports, explicitly noting that the number may be inaccurate given the use of data samples and their interpretation.

Given current market conditions, Mogarabi said, Twitter could also have a strong case that layoffs and layoffs in recent weeks represent “business as usual.”

“Many tech firms have begun to control costs by cutting headcount and/or postponing adding new employees,” he said. “Twitter’s resignations cannot be confidently attributed to any changes to Twitter’s operations since Musk’s proposal was accepted by the board of directors and shareholders.”

Technology industry analysts say Musk’s hiatus leaves behind a more vulnerable company with demoralized employees.

“With Musk officially pulling out of the deal, we believe the business outlook and stock valuation are in question,” CFRA analyst Angelo Zino wrote in a note. “Now (Twitter) will need to operate as a separate company and deal with ad market uncertainty, a damaged employee base, and concerns about the status of fake accounts/strategic direction.”

Uncertainty over who will run Twitter could lead cautious advertisers to slash their spending on the platform, Mogarabi said.

But the drama surrounding the deal, he added, is also likely to bring new users to the platform and increase engagement, especially given the upcoming midterm elections. This, he says, could convince advertisers to cut costs a little less. In the long term, he says, “we think Twitter will remain one of the top five social networks for advertisers.” ___

This summary of the story has been amended to reflect Elon Musk’s agreement to pay $54.20 per share of Twitter rather than $53.40.