Wall Street Breakfast: Twitter Endgame

Wall Street Breakfast: Twitter Endgame
Wall Street Breakfast: Twitter Endgame

Things are getting chaotic in the Elon Musk-Twitter (NYSE:TWTR) saga after the billionaire warned that he could walk away from the $44B acquisition if the platform does not provide detailed information on spam and fake accounts.

“This is a clear material breach of Twitter’s obligations,” Musk’s lawyers wrote in a letter, adding that the company was “actively resisting and thwarting his information rights.” In the past, Twitter CEO Parag Agrawal has said he “doesn’t believe that this specific [bot] estimation can be performed externally, given the critical need to use both public and private information (which we can’t share).”

Snapshot: It’s even more interesting as Elon Musk didn’t want to do any extensive due diligence when abruptly announcing the deal back in April. At the time, he wanted to complete the acquisition as soon as possible, but then slammed the breaks over the bots issue, which is not the first time the topic has surfaced.

While Musk has agreed to pay $54.20 per share for Twitter, the company’s stock price is now trading at $39.56, which is significantly lower than where things stood even several weeks ago. “It’s fairly obvious that Musk has buyer’s remorse and he is trying whatever to get a reduction in price, and I think he may succeed,” said Dennis Dick, a prop trader at Bright Trading.

From a legal perspective, the only way Musk could abandon the deal is a refusal from the banks to provide financing or regulators block the transaction. Lawyers for the Tesla (TSLA) CEO may be trying to link the bots issue to his ability to secure financing, allowing him to walk away by paying a $1B breakup fee (Texas on Monday opened a separate investigation into Twitter’s alleged fake accounts based on the state’s Deceptive Trade Practices Act). However, Twitter’s disclaimers used in its projections on spam accounts and a “specific performance” clause could give it protection against potential lawsuits, and Musk would have to prove that he was willfully misled (which is a high legal threshold).

Outlook: Twitter intends to enforce the merger pact on the agreed-upon terms, but could renegotiate if it sees a protracted legal battle or maneuvering for Musk to wiggle out of a deal. If that were to happen, Twitter shares could sink even further, making it a bigger acquisition target for other buyers at a cheaper price. Twitter shareholders are not the only ones watching the show as Tesla investors also have an indirect financial interest in the outcome of the corporate drama