Elon Musk and Twitter are preparing for a legal battle after the billionaire said he was ditching his $44 billion bid for the social media corporation. Twitter is promising to challenge Musk in court to sustain the contract. Shares of Twitter saw a downfall of more than 11 % after Musk’s statement. Here’s a look at what’s next for the Musk-Twitter Saga.
Why is Musk Backing Out of the Deal?
There are a bunch of reasons why Musk might have had second thoughts about this massive tech deal. But he alleged that the social media company has failed to deliver adequate information about the number of fake accounts it has.
Last month, Twitter released a statement that it was making available to Musk a “firehose” of raw public data on hundreds of millions of everyday tweets. On the contrary, Musk’s lawyers have asserted that the company was providing Musk with sometimes “incomplete or unusable information” and more petite data than it provides some of its major clients.
Last week, Twitter stated that it utilized a mix of public and private data to specify the number of spam tweets. Private user data is not available publicly and thus isn’t in the data “firehose” that it provided Musk. That would contain phone numbers, IP addresses, and location data. Twitter communicates that such private data assists avoid misidentifying genuine accounts as spam.
Twitter has declared for years in regulatory filings that it acknowledges about 5% of the accounts on the social media platform are fake. But Musk continued to mock the company using Twitter over what he characterized as a lack of data.
What is Twitter’s Reaction?
Twitter announced its plan to sue Musk over the deal. Under these circumstances, the company could have pushed for a $1 billion breakup fee that Musk agreed to pay. Instead, Twitter looks willing to battle to finalize the acquisition, which the company board has approved, and CEO Parag Agrawal has insisted he likes to consummate.
The chairperson of Twitter’s board, Bret Taylor, tweeted that the board is “committed to closing the transaction on the price and terms agreed upon” with Musk and “plans to pursue legal action to enforce the merger agreement. We look forward to the trial in the Delaware Court of Chancery.”
The trial bench in Delaware often handles business conflicts among the many companies, including Twitter, that are incorporated there.
Who’s Going to Win?
It’s practically impossible to forecast the result of any lengthy legal fight. But regulation and industry experts feel Twitter possibly has the stronger claim.
A senior analyst from a reputed newsgroup cited that Twitter had conveyed its estimate of spam and fake accounts for years in regulatory filings while explicitly mentioning that the figure might not be precise given the usage of data samples and interpretation.
Given existing market circumstances, the analyst said, Twitter may also have a concrete assertion that the firings and layoffs of the last few weeks represent “an ordinary course of business.”
“Many technology firms have begun to control costs by reducing headcount and delaying adding employees,” he said. “The resignations of Twitter employees cannot be attributed to any change in how Twitter has functioned since the board and shareholders approved Musk’s offer.” The lawsuit could also conclude in a settlement, for example, with the two parties bargaining a lower price. If Musk wins the case, there’s also the question of the $1 billion breakup fee. He can indeed afford it, but will he like to pay?
What Happens to Twitter Now?
To put it mildly, the Musk saga has distracted Twitter’s employees, leaders, and even users. Some workers have quit, while others were laid off or fired. Appointment offers have been abandoned and discretionary spending trimmed.
“For Twitter, this fiasco is a nightmare scenario,” Wedbush analyst Dan Ives, who follows the group, wrote this week. He stated the outcome would be “an Everest-like uphill climb for Parag & Co., given concerns over employee morale and retention, advertiser concerns, and other challenges.”
Twitter itself is unlikely to go anywhere regardless of whether or not it switches leadership. But if the unrest persists, it could intimidate the advertisers. If too many developers and other workers quit, the platform’s quality could also suffer. “The one bright spot is that if Twitter is ultimately victorious in the courts, it could potentially take north of the $1B in breakup fees that Musk could have to pay,” expressed CFRA Analyst Angelo Zino.
If Musk Loses, Will he Comply?
Even if Musk loses the court battle against Twitter, some spectators wonder if the world’s wealthiest guy will stay by the decision. We are depicting this based on his aggressive approach to adverse actions from the Securities and Exchange Commission over Musk’s tweets declaring he had the budget to take Tesla private in 2018.
That results in a securities fraud settlement with the SEC mandating that a Tesla attorney approve his tweets before publishing. But the SEC later examined whether the Tesla CEO violated the settlement with tweets last November asking his Twitter followers if he should sell 10% of Tesla stock.
Musk had reasoned that the agency couldn’t take action regarding his tweets without court approval. This time, however, he could face an actual court ruling to pay the $1 billion breakup fee — or to complete the purchase even if he doesn’t desire to.
