Musk’s plan to buy Twitter has politicians around the world concerned.
Captain Joe | Reuters
Elon Musk cannot simply walk out of his deal to acquire Twitter by paying an agreed-upon $1 billion breakup fee. It is not so simple.
Musk tweeted Friday that he has decided to “hold” his acquisition of Twitter while he investigates whether the number of fake/spam accounts on Twitter is actually only 5%, as the company has long claimed. He followed up that tweet with another reiterating that he is still committed to the acquisition.
But he risks a Twitter breach of contract lawsuit that could cost the world’s richest man many billions of dollars.
More than a break fee
Musk and investors may want a better deal
Musk’s reasoning for suspending a transaction may be similar: he might want Twitter to lower his asking price. Twitter shares fell more than 8% on Friday and 23% below Musk’s agreed-upon purchase price of $54.20 per share. Some of the drop is related to a general drop in tech stocks this month. The Nasdaq has fallen another 11% since the market close on April 25, the day Twitter accepted Musk’s offer.
“This is probably a negotiating ploy on behalf of Elon,” Toni Sacconaghi, a senior research analyst at Bernstein, said on CNBC’s “Squawk Box.” “The market is down a lot. He’s probably using the guise of real active users as a trading strategy.”
Musk may feel some pressure or obligation toward other potential investors on Twitter to lower the price, even if the world’s richest man is more price agnostic.
Musk is in talks with outside investors for both equity and senior financing to reduce his personal stake in Twitter. If you can get a lower price for Twitter, the returns could be higher for outside investors as long as Twitter goes back into public ownership or is resold.
Why could he still try to get out on bail?
Although he said he remained committed to buying Twitter, Musk may be tempted to throw in the towel given the losses he is making on paper regarding his ownership of Tesla stock. Tesla shares are down 24% in the past month.
If Musk believes his losses from Tesla are related to his takeover of Twitter and are significant enough to potentially exceed both the $1 billion termination fee and any additional damages he would be charged in court if he loses, he could decide. leaving makes sense.
But he would also have to deal with the reputational damage associated with breaking a deal. It’s unclear if any future company would risk selling to Musk with that track record.
Musk was not immediately available for comment.
Twitter may need to renegotiate
Just as Tiffany and LVMH have finally come to terms, Twitter may not have many good options besides renegotiating with Musk. The company likely wants to avoid a costly and lengthy lawsuit. Employees may flee since the company would not have a clear plan for the future. Twitter is already cutting costs. On Thursday, he fired two executives and said he would suspend hiring.
When Twitter agreed to sell to Musk for $54.20, the board didn’t bother to push for a higher price, in part because there were no other interested buyers at that price. Twitter’s board concluded that it was unlikely to return to higher levels any time soon given this year’s valuation drop in peers like Facebook and Snap.
Twitter’s best outcome may be to simply accept a lower offer from Musk.
A Twitter spokesman was not immediately available for comment.
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