Elon Musk’s decision to terminate his Twitter purchase agreement for $44 billion That’s probably bad news for the social media company, no matter how a potential legal battle plays out. The company’s shares have already fallen more than 18% since the Tesla CEO made the first acquisition proposal, while complained about the ‘bots’ that prevail on the platform.
What can happen once you have canceled the agreement? There are more and more analysts who see it in black for the signature of the blue bird. It is the case of Daniel Ives y John Katsingrisexperts from Wedbush, who called the cancellation of the agreement as “a disaster for Twitter”adding that they anticipate a “protracted court battle” between Twitter and Musk.
On Saturday morning, analysts revised their 12-month forward price target for the company’s shares up to 30 dollars, below the previous $43, and reaffirmed their neutral position. Additionally, another analyst, Trip Chowdhry of Global Equities Research, has an even lower price target for the stock: $20.
In a July 8 filing with the Securities and Exchange Commission, Musk said he was terminating the April 25 merger deal to buy the company for $54.20 per share on the grounds that Twitter was in “default.” material” of several of its provisions. Twitter responded to the presentation claiming the following: “We are committed to closing the transaction at the price and the terms agreed with Mr. Musk and we plan to take legal action to enforce the merger agreement.”
At the core of Musk’s stated concerns is the number of fake accounts on the social network. Twitter has said it estimates less than 5% are spam bots, but Musk has suggested that as many as 20% of the platform’s global monetizable daily active users (mDAUs) are fake or spam accounts. The text presented by the South African suggests that Twitter has not provided enough data for an independent evaluation of such accounts, despite repeated requests for that information.
For now, Twitter did not respond directly to the criticism, but in June it gave Musk access to its associated data on a limited basis. The CEO Parag Agrawal tweeted in May that the requested information could not be provided, saying, “We do not believe this specific estimate can be done externally, given the critical need to use both public and private information (which we cannot share). Externally, it is not even possible to know which accounts are counted as mDAU on any given day.”
The judicial and extrajudicial framework
The agreement also included a penalty of 1,000 million dollars that Musk would have to pay if it did not materialize. However, Twitter is likely to demand the full $44 billion settlement price, as Ann M. Lipton, a professor at Tulane Law School, recently published. “Twitter has little reason to settle for the termination fee; their legal position is too strong,” she adds.
“Musk’s claims that Twitter made false estimates would not be a strong reason to reverse the agreement”, according to Lipton. “Musk would have to prove that the data is so grossly false that it would have a significant long-term impact on Twitter’s finances, and at this time there is no evidence that this is the case,” the expert says.
In the nearly three months since Musk’s deal with Twitter was announced, shares of the social network have suffered especially in the markets. The day the company greenlit the offer, shares closed the session at $51.70. At the close of last Friday, they had fallen to $36.81, which represents a decline of 29%. Ives and Katsingris say in this regard that they expect the company’s shares to have added downside potential over the current price.
The news impacts beyond Twitter shares, which are down 14.8% so far this year. The titles of Tesla rose 2.3% in after-hours trading on Friday following the announcement and now are in the eye of the hurricaneonce the agreement has been left in the dry dock.
For Twitter investors who have seen the stock plunge since the social media company agreed to Musk’s deal, a legal battle is not the only concern. Wedbush analysts point out that the company’s management team will have to deal with a host of issues, from employee turnover to strategy changes, after “this unleashed earthquake.” From Jefferies they pointed in the same direction: “now the company is going to be immersed in a wave of problems”. Time will dictate sentence.
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