Twitter (TWTR) shares extended declines Monday following Tesla (TSLA) CEO Elon Musk's declaration that he's 'terminating' his $44 billion merger agreement and the social media group's vow to make him go through with the deal.
Twitter's board, after hiring the Delaware corporate law and merger specialists Wachtell, Lipton, Rosen & Katz LLP over the weekend, is reportedly ready to file suit against Musk after the billionaire moved to back out of his takeover deal late Friday, in a letter to the SEC, amid accusations that the micro-blogging website is hiding data related to the number of fake and spam accounts on its platform.
Securities and Exchange Commission filings published in late April indicate that Musk, by some measures the world's richest man, will be required to pay a $1 billion termination fee if his effort to buy Twitter and take it private fails.
Twitter is also required to pay Musk a similar amount, the filings indicated, although both sides will have the option of walking away if the takeover isn't completed by October 24. Twitter is also able to accept -- but not solicit -- a superior bid to Musk's if one is proposed.
Musk, who waived his right to due diligence on the deal when it was unveiled earlier this spring, has consistently said that Twitter is refusing to co-operate by not sharing its calculations of fake accounts, while Twitter said it stood by its earlier filings with the Securities and Exchange Commission, which suggest less than 5% of total accounts are spam or fake.
"While Mr. Musk's letter was focused was on bots, we expect him to pursue multiple paths to terminate the deal including Mr. Musk highlighting that he believes Twitter did not conduct itself in an ordinary course of business, which would negate the deal, as it implemented a hiring freeze, reduced its talent acquisition team by a third, and fired two execs," said JMP Securities analyst Andrew Boone. "Additionally, we note the Texas AG is now investigating bots on Twitter as we expect Mr. Musk to use multiple tactics to release himself from the deal."
"While we do not expect Mr. Musk to prevail in his argument regarding bots, it will open up a messy discovery process should Twitter head to court," he added.
Twitter shares were marked 9.75% lower in early afternoon trading to change hands at $33.27 each. Tesla shares were marked 6.5% lower at $703.51 each.
Musk's commitment to the takeover was questioned within weeks of unveiling of his $44 billion takeover agreement in early April, which followed a late reporting of his holdings in the group and a change-of-heart in terms of his long term intentions.
Musk appeared to breach at least a portion of the agreement's terms when he Tweeted criticism of the company's decision to censor pre-election reports on Hunter Biden, President Joe Biden's son, and his linked to business leaders in China and Ukraine.
He doubled-down on that risk with another message to his 100 million-plus followers, alleging that former President Donald Trumps 'Truth Social' media group "exists because Twitter censored free speech."
Musk then declared in May that the $44 billion deal was temporarily on hold" following a report from Reuters, based on a Twitter 10-Q filing with the Securities and Exchange Commission, stated that Twitter had 229 million users who viewed consistent ads, adding that fewer than 5% of its so-called 'monetizable daily active users' were false or spam accounts.
