Twitter has been thrust into the awkward position of going to court to enforce a takeover it wasn’t even sure it wanted in the first place.
Twitter shares plunge as it braces for messy legal battle with Elon Musk
The board has a responsibility to get the best value for shareholders, experts say, and right now that path appears likely to involve a lengthy legal battle to compel Musk to fulfill the agreement.
The monetary stakes are clear: Twitter shares fell to their lowest point in two months on Monday after Musk announced he was “terminating their merger agreement” in a regulatory filing. The stock closed at $32.65, nearly 40 percent below the $54.20 a share price that Musk agreed to pay in April.
“It puts the Twitter board in a tough position,” said David Larcker, a professor at Stanford’s graduate school of business who studies corporate governance. “Either the court is going to force him to buy the company, the court is going to let him off the hook with a buyout — or something else is going to happen.”
Another option could include a possible renegotiation or settlement.
The would-be deal has been tumultuous from the start, since Musk launched his hostile takeover bid in April. It initially appeared as the though company might pass, but the board was persuaded that a sale would be in the best interest of the company and shareholders. In the months that followed, Musk has regularly criticized Twitter on its own platform. Many employees have voiced concerns he would fundamentally alter operations, slash jobs and roll back content safeguards that had been put in place over years.
Ultimately, Musk’s decision to drop the bid stems from his insistence the company is withholding information on bot accounts; Twitter contends it has turned over significant information.
Legal experts have said that it will be difficult for Musk to just walk away from the deal with that reasoning. He could be on the hook for a $1 billion breakup fee, and potentially more after court proceedings. Twitter has retained a prominent New York law firm to help it complete the sale.
Twitter sent a letter to Musk on Sunday, saying that his move to terminate the agreement is “invalid and wrongful” and demanding that Musk fulfill his obligations.
The dropping stock price, uneasy workforce and general uncertainty plays into a “worst-case scenario” for the company even if it prevails in court, experts say, because it opens the company to new financial risks. Twitter could be forced to make key business metrics public, inviting skepticism from Wall Street about the company’s health.
Musk appeared to be of the same mind, tweeting just after midnight Monday: “They said I couldn’t buy Twitter. Then they wouldn’t disclose bot info. Now they want to force me to buy Twitter in court. Now they have to disclose bot info in court.”
The tweet included a meme with photos of Musk laughing.
Carl Tobias, a law professor at the University of Richmond, believes the suit will end in a settlement “sooner rather than later, just because everybody is dissatisfied on both sides.”
The broader market ended in sharply lower Monday as investors geared up for earnings season. The tech-heavy Nasdaq slumped about 2.3 percent to close at 11,372.60, while the S&P 500 sank 1.2 percent to end at 3,854.43. The Dow Jones industrial average dropped 0.5 percent, or nearly 165 points, to settle at 31,173.84.
Investors will be closely monitoring financial results from the major banks this week, including JPMorgan Chase and Morgan Stanley on Thursday, and Wells Fargo, PNC Financial and Citigroup on Friday, to gauge the health of the economy. Experts say the amounts they have in reserve — the amount of cash they hold to meet central bank requirements — matters because it shows their level of concern about a recession.
Wall Street has been trying to regroup after closing out the first half of the year with steep losses in the face of soaring prices and geopolitical turmoil. Changing monetary policy has fueled much of those declines this year: The Federal Reserve has raised its benchmark interest rate three times in 2022 in an attempt to tamp down inflation and signaled that four more increases are on the docket. The most recent hike, in June, came in at three-quarters of a percentage point, the Fed’s largest since 1994.
This week, the Bureau of Labor Statistics will release inflation data for June. In May, the consumer price index rose 8.6 percent, a 40-year high. The Biden administration and the Fed have warned that prices will continue to rise until supply chains and consumer demand recalibrate and the economy recovers.
“The hope among investors and traders is that this week they will get to see a reading that will confirm that inflation in the U.S. has reached its peak level, and if that happens, it will provide some comfort to many traders in the market,” said Naeem Aslam, chief market analyst at AvaTrade.
Source: WP
