Twitter shares are plunging Monday in the first day of trading since Elon Musk abandoned his $44 billion agreement to buy the company – and one tech industry analyst is warning of a potentially disastrous long-term scenario for the embattled social media firm.
Twitter’s stock sank nearly 8% in early trading as investors reacted to the exit.
Musk’s move that sets up a lengthy court battle likely to weigh on company shares for months or years to come and added to the challenges facing CEO Parag Agrawal, according to Wedbush analyst Daniel Ives.
“For Twitter this fiasco is a nightmare scenario and will result in an Everest-like uphill climb for Parag & Co. to navigate the myriad of challenges ahead around employee turnover/morale, advertising headwinds, investor credibility around the fake account/bot issues, and host of other issues abound,” Ives said.
Musk’s team argued that Twitter has repeatedly failed to provide accurate information about the number of spam bots in its user base in a filing last Friday detailing his decision to renege on the deal. Meanwhile, Twitter’s board has already indicated it intends to sue Musk to close the deal at its original $54.20 per share sale price.
Investors are likely to price in the possibility of a court battle resulting in a victory for Twitter, whether through a sale at a different price to Musk or through recouping a $1 billion breakup fee included in the original takeover agreement, according to Ives.
“That said, this is going to be a long and ugly court battle (Twitter has already hired counsel) ahead in which the fake account/bot issue will be scrutinized for all to see and casts a dark cloud over Twitter’s head in the near term,” Ives said.
“The legal issues could last into 2023 and in the meantime Twitter is a public company that needs to navigate day-to-day operations with many challenges ahead with its stakeholders,” he added.
Wedbush has a 12-month price target of $30 for Twitter shares – below the roughly $34 threshold at which the company’s stock currently trades.
While Twitter is widely seen as having the upper hand in a court battle with Musk due to the terms of its agreement with the billionaire, the long-term outlook for a resolution to the dispute is murky at best.
Bloomberg columnist Matt Levine noted the possibility that Musk could refuse to buy Twitter even if a Delaware court orders him. That, in turn, could start a saga that raises questions about the Delaware court’s authority — a scenario a judge will likely seek to avoid.
“What if the court orders Musk to close the deal and he says no? They’re not gonna put him in Chancery jail,” Levine quipped. “The guy is pretty contemptuous of legal authority; he thinks he is above the law and he might be right.”
Twitter isn’t the only entity that stands to take a hit from the legal drama. Ives noted that investors will view the situation as a “black eye” for Musk, who may have gotten buyer’s remorse during a broader downturn in the stock market and opted for a hasty exit.
“In a nutshell this is a “code red” situation for Twitter and its Board as now the company will go head to head against Musk in a Game of Thrones court battle to recoup the deal and/or the breakup fee of $1 billion at a minimum,” Ives added. “We see no other bidders emerging at this time while legal proceedings play out in the courts.”