Twitter’s descent into hell because of Elon Musk falls
The social networking group, Twitter, was hit hard Monday, July 11 on Wall Street by the abandonment by Elon Musk of his plan to buy the social network, a decision “invalid and unjustified” according to the platform that requires the multi-billionaire to meet its commitments.
Twitter’s share price plummeted by 11.3% on the New York Stock Exchange to end at USD 32.65, 40% less than what the entrepreneur had offered when he announced his intention to take over Twitter in mid-April.
Elon Musk came out of the woodwork, he made it known Friday in a letter to Twitter that he was ending the deal.
Twitter, he believes, did not respect its commitments by not communicating enough information on fake accounts and spam, and by minimizing their number.
Elon Musk also invokes several recent decisions of Twitter as the freeze of recruitment, contrary to the obligation for the company to continue operating normally.
This is not true, Twitter’s lawyers officially responded in a letter sent Sunday to Mr. Musk and his legal representatives, and published Monday evening, July 11, on the website of the U.S. Securities and Exchange Commission.
“Contrary to the assertions in your letter, Twitter has not violated any of the obligations set forth in the agreement,” they wrote.
Twitter, therefore, requires the multi-billionaire to keep its commitments.
The Twitter group claims, in particular, to have transmitted the information requested by Mr. Musk on the number of inauthentic accounts on its platform, which he claims to be less than 5% while the multi-billionaire estimates it much higher.
The excuses given by the entrepreneur do not allow to legally motivate a breach of contract, argue several specialists.
The two sides are now engaged in a legal tug of war, which could cost Mr. Musk several billion dollars if he loses.
Elon Musk shared Monday, July 11, his first reaction on Twitter since the announcement of his withdrawal by publishing an image containing four photos where he appears hilarious.
“They said I couldn’t buy Twitter. Then they refused to reveal information about fake accounts. Now they want to force me to buy Twitter in court. Now they are forced to reveal the information about fake accounts,” it reads next to each snapshot.
Elon Musk published shortly after a photo of actor Chuck Norris winning at chess, simply accompanied by the expression “Chuckmate”, a play on words between “checkmate” and the actor’s name.
For Dan Ives of Wedbush Securities, “this is an ‘extreme danger’ situation for Twitter and its board as the company faces Musk in a Game of Thrones-style legal battle to salvage the deal or at least recover the $1 billion (U.S.) breakup fee.”
“We don’t see any other bidders standing out at this point as the legal process will begin in court,” the analyst added.
Ali Mogharabi, an analyst for Morningstar, believes, however, that at the level the stock is currently moving, “other parties could be interested in Twitter.” There is always the scenario where Elon Musk ends up buying the group, but at a lower renegotiated price, he adds in a note.
No one can give the outcome of the legal battle, analysts at S&P Global Ratings note that either way, it “increases uncertainty and reputational risk” for the platform.
The decline in business growth was expected to “significantly affect the advertising revenue” of Twitter, which makes up about 90% of its revenue, they also argue.
They plan to lower Twitter’s rating by one or more notches if the deal is confirmed at the initial price or if it is cancelled. On the other hand, they could decide to leave it at its current level if the two parties reach an agreement and if the reputation of the social network, both with its users and advertisers, is not too damaged.