Deal on the Rocks
This past Friday, the world’s richest man Elon Musk told the SEC he was looking to pull out of his $44 billion deal to purchase Twitter (TWTR). Following a hostile takeover bid this spring, Musk had negotiated a price and announced his intention to take the social media platform private.
Since then, a snag emerged when Musk claimed Twitter had failed to provide enough information concerning so-called “bots” or fake accounts. A legal battle is now expected, continuing a wild saga that first kicked off in April after Musk announced he had acquired a 9% stake in the company. Musk, CEO of Tesla (TSLA), sold stock he owned in the EV maker after the terms of the Twitter deal had been reached.
Who Is Most Affected
While evaluating the fallout from the canceled deal, it’s possible Musk ends up being required to pay more than the $1 billion breakup fee that was negotiated as part of the agreement. This could involve a settlement of some kind. The most extreme result would arguably be if a judge forced Musk to buy Twitter at the previously agreed upon price of $54.20 per share. This is especially true because some of his financial backers might also back out.
Other groups left in the lurch include Twitter’s workforce, as their employer is now tied up in legal proceedings without a clear outcome. Twitter’s board of directors is also thrust into a messy situation, after they initially tried to rebuff Musk’s takeover attempt with a poison pill strategy.
Forecasting Twitter’s Future
The first order of business for Twitter will be navigating the impending legal proceedings, as the social media giant intends to sue Musk, and hired merger law heavyweight Wachtell, Lipton, Rosen & Katz. In the meantime it’s possible distracted employees are less productive or choose to leave for different jobs.
Some industry observers say Twitter has been weakened by the highly-public negotiations, as well as the perception it has too many fake accounts. It’s possible the company seeks out a new buyer in an attempt to turn things around, but regulators have been strict about mergers, making the process challenging. It’s also hard to find buyers with deep enough pockets. Twitter will be forced to focus on rebuilding its business, all while listening closely to what its lawyers have to say.
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