Elon Musk no longer wants to buy Twitter. Not surprisingly, Twitter is now suing Musk to hold him to their US$44 billion buyout agreement. Investors welcomed the move – Twitter’s stock has been rising since the lawsuit was filed.
In the court filing, Twitter accused Musk of trying to “trash the company, disrupt its operations, destroy stockholder value, and walk away.” The stage is set for a peculiar courtroom battle.
Back in April, Twitter tried to block Elon Musk’s takeover but relented when Musk offered to buy Twitter for US$54.20 a share, a nearly 40% premium to Twitter’s share price the day before Musk disclosed his stake. Now, Musk doesn’t want to buy, but Twitter is forcing him to buy them anyway.
Here’s a look at four possible outcomes that could affect Twitter stock going forward.
Twitter wins, Musk is forced to buy the company
Twitter is suing for “specific performance” under the terms of its agreement with Elon Musk i.e. they want him to complete the acquisition at US$54.20 a share. If the court grants the order, Musk will be forced to buy Twitter after all.
This is the best-case scenario for Twitter investors, but not so much for Twitter employees. If Musk truly doesn’t want to own Twitter, he could potentially complicate the ownership transition, or try to undermine Twitter’s business model.
Twitter has requested a four-day trial starting in September. This unusually short trial time suggests that Twitter’s lawyers are confident the court will side with them.
Musk pays the stipulated US$1 billion “break-up fee”
In this scenario, the court agrees with Twitter that Elon Musk has breached their contract, but only orders him to pay the agreed upon “break-up fee” of US$1 billion to end the agreement.
Musk currently argues that Twitter violated their agreement, so he shouldn’t have to pay this fee at all.
Musk is one of the richest people in the world. Letting him pay US$1 billion to walk away after “trashing” Twitter doesn’t seem equitable and could potentially spark further selloffs.
Twitter and Musk settle for him buying Twitter at a lower price
A courtroom tussle is expensive and time-consuming. Twitter and Elon Musk may choose to avoid this by renegotiating a new takeover deal that will see Musk pay less than $54.20 per share to buy Twitter.
This is similar to how LVMH acquired Tiffany & Co. Over the course of the takeover process, both parties sued each other, and at one point, LVMH retracted its offer completely. Tiffany ultimately agreed to a lower price to prevent the deal from collapsing.
According to Wedbush Securities analyst Dan Ives, Twitter investors are already pricing in the possibility of a renegotiated sale or settlement.
Twitter and Musk settle for him walking away at a higher price
Does Elon Musk still want to own Twitter? As we discussed on our podcast, Tesla’s share price has been hammered by concerns that Musk is stretching himself too thin with his different companies.
In this scenario, Musk may agree to pay Twitter more than $1 billion to settle the matter out of court and put the deal behind him. If the amount is sufficiently high, Twitter’s board can then argue to investors that it made the right fiduciary decision to take the settlement money instead of pursuing further legal action.
Twitter stock: Brace for uncertainty
As advertisers pull back on digital ad spends in the current climate, Twitter is also facing some real business challenges outside of Elon Musk. Employee morale is low and they’ve lost some high-profile engineers recently. A talent exodus may impact future product development and affect platform quality.
In light of the spam accounts debate, advertisers may not trust Twitter’s operating metrics. This could further hurt Twitter’s already weak ad revenues.
Moreover, Elon Musk owns about 9% of Twitter stock. Should he decide to liquidate his position, that could drag down Twitter’s stock.
Expect more twists and turns
The Musk-Twitter saga is far from over.
Will he comply with court orders to buy a company he doesn’t want? Or, will he work with Twitter to come to a mutually beneficial decision? Elon Musk being Elon Musk, anything is possible.