Twitter Stock Analysis Now that the Trial is Longer: Image: Adobe stock

Twitter Stock Analysis Now that the Trial is Longer

The back story behind Musk’s purchase of Twitter is not a straight line. There have been plenty of turns in the process.


Twitter Stock Analysis Now that the Trial is Longer: Image: Adobe stock

The purchase of Twitter by Elon Must received a revived bid in October and continues to display the twists and turns of a fictional saga. Musk renewed his pledge to purchase Twitter at the original price of $54.20 per share. His imminent court date is canceled as the Tesla CEO takes Twitter private. According to filings at the Securities and Exchange Commission, Musk provided his proposal in a letter to Twitter. Twitter confirmed the receipt, and management expects to close the deal at the agreed price.

The Back Story

The back story behind Musk’s purchase of Twitter is not a straight line. There have been plenty of turns in the process, which made for volatile stock price activity. Soon after the announcement that Musk had bid for Twitter, historical volatility surged. In the six months after the statement, the historical volatility of Twitter shares had hit 65%, the highest since the outset of the Covid-19 pandemic. Strong movements in the social media giant’s share prices have seen traders looking for opportunities while trying to hedge risk. Once back in the news, headlines went from what is forex trading and the biggest issues of the moment that dealt with the devastating power of the USD, to all eyes on Twitter.  

On April 25, Twitter’s board accepted Musk’s bid to purchase the company and take it private. Musk seems to believe in the importance of free speech and having a platform to make that a reality. His quotes, such as “Free speech is the bedrock of democracy,” reflect his view. Thus, it was no surprise when the press release by Musk announced a $44 billion deal to purchase Twitter.

Musk described his primary interest in buying Twitter as his view of the platform’s censorship of free speech. Musk acknowledged that content moderation was needed to deal with issues like a call to violence. Musk favors a “time-out” than a permanent ban, thus allowing people to be reinstated.

Musk did not decide overnight to purchase the social media platform. Instead, he started buying shares and, before his bid, disclosed the significant stake in the company. In the following days, Twitter announced that Musk would join the board. This announcement was followed by Musk reversing course and offering to purchase the company. Twitter’s board of directors adopted a position that allows shareholders to buy company shares at a discount if there is a move to acquire more than 15% of the outstanding shares.

Twitter’s board considered rejecting the deal. They seemed to be concerned about Musk’s ability to finance the transaction. Twitter’s board of directors also believes that the price undervalued the company. Once Musk filed with the Securities and Exchange Commission that he had commitments of $46.5 billion split between equity and debt, the deal took on greater significance. Musk was also bold enough to state that he was considering a tender offer to purchase shares of Twitter directly from shareholders.

The Trial

In May 2022, Musk started to perform some due diligence that might not have been accomplished ahead of the official bid by Twitter. Musk seemed uncomfortable with the original purchase price and tweeted that he was concerned about the volume of fake accounts on the social media platform. In regulatory filings, Twitter disclosed that it believed it had no more than 5% of the accounts were fake. In June, Musk’s lawyers filed a letter that stated that Musk’s financing was contingent on receiving robot information on phony accounts to evaluate the legitimacy of the business. Some perceived Musk’s comments as his way of trying to walk away from the deal.

As part of the deal, both sides agreed to pay a $1 billion walk-away fee should either side decide it could not move forward with the agreement. While Musk was complaining about fake accounts driven by bots, the Twitter stock price dropped from $54 when the deal was announced to $36.81, shaving about $14 off the company’s value.

On July 8, 2022, Musk said he wanted to end the deal with Twitter. His lawyers said that Twitter failed to comply with the obligations in the merger agreement. Twitter’s Chairman of the Board, Bret Tayor, noted that the company was committed to closing the deal at the agreed price and planned to pursue legal action. Musk’s attorney said that Twitter did not provide the requested information and that their contract would require it. Musk had requested information regarding the claims that Twitter knew that 5% of its users are spam. Musk’s lawyers also claimed that Twitter breached the contract because of material inaccurate information.

As it became clear that Musk was trying to find issues with Twitter and walk away from the deal, Twitter filed a suit in Delaware Federal court against Elon Musk. On July 12, 2022, Twitter submitted documents to hold Elon Musk to the original $44 billion purchase deal. Musk claimed that Twitter had violated the agreements of the deal by misleading him and could not verify the number of fake accounts on the social media platform. Twitter said Musk knew of the issues and was willing to move forward despite these issues.

Twitter also said that Musk was at the heart of the stock price decline. Musk’s public comments and critiques of Twitter and the deal led to additional risks to Twitter’s business. Twitter also stated that they made several meetings that Musk failed to attend that addressed his concerns about spam accounts.

Twitter had several tweets from Musk showing that he had planned to take the company private and purge spam accounts from the platform, offering he was aware of the extent of the phony accounts. Twitter also claimed that Musk was acting in bad faith and that he would not be able to close the deal. Twitter stated that there were few closing conditions in the contract other than requiring a majority vote from Twitter’s board and stockholders and regulatory approval. Twitter also pointed to the agreement’s data sharing, which said that each party had to offer reasonable access to the information. Additionally, Twitter claimed that Musk did not want to bear a market meltdown and purchase the shares at the original price after the share price declined to $36.81 from $54.

About Face Again

After months of attempting to exit the deal, Musk agreed again to purchase Twitter at the original price, a move believed to be Musk’s way of avoiding the trial scheduled for October 17, 2022. The judge in the case, Judge Kathaleen McCormick, said that the prosecution could not be called off until both parties agreed. Musk’s legal team sent a letter to the court saying that Musk expected to move forward with the transaction to purchase Twitter and that the acquisition should close on October 28, according to plan.

It appears that Twitter is taking some precautionary steps to avoid a repeat of the current situation. Reuters reported that two potential backers of the deal, Apollo Global Management, and Sixth Street Partners were no longer in talks to help Musk finance the deal with Twitter. Twitter opposed the letter Musk filed, saying that the issue is that Twitter is unwilling to accept the agreement. The obstacle is that Musk still refuses to accept their contractual obligations. The judge said that Musk had until October 28, 2022, to close the acquisition of Twitter if he wanted to avoid a trial.

Twitter Seeks Documents

Twitter also has requested documents relating to a federal investigation of Elon Musk and a federal investigation into the bid for Twitter. Twitter said Musk’s lawyer had cited privilege about a study that started on July 22, 2022. Twitter is also seeking information that the SEC requested regarding a Tweet from Musk in May when Musk said that the deal could not move forward until Twitter provided him with more information about spam accounts.

The Bottom Line

The saga regarding the purchase of Twitter by Elon Musk continues to remain in limbo. Everything seemed to start straightforwardly, but closing the transaction took many twists and turns, beginning with Musk’s attempt to maneuver away from the deal in May following an accepted bid in April.

Musk started by throwing barbs at Twitter, saying there were too many spam accounts beyond Twitter’s stated numbers. According to Twitter, Musk’s constant barrage of negative comments about the company and the number of phony accounts weighed on the stock price, taking the shares down to $36.81 from the initial price of $54 per share. Twitter claimed that Musk did not want to purchase the shares at $54 when trading near $36, and he was trying to back out of the transaction.

Approximately one week ahead of expected depositions, Musk announced that he planned to move forward with the original deal. According to the court, the trial could be delayed, and Musk needed to close the transaction with Twitter ahead of October 28, 2022. If he did not, the trial would proceed with depositions. Musk appeared to have hoped that with a new revived bid, the prosecution would be disbanded, but he will need to close before the trial can take place.

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