Only two hours later, Musk tweeted again: “Still committed to acquiring Twitter.” Foreign media quoted people familiar with the matter as saying that a lawyer close to Musk urged him to send a follow-up tweet.
The two tweets caused a huge shock in Twitter’s stock price. Twitter’s stock price fell 9.57% on Friday and plunged 20% before the market. The company’s market value is now about $13 billion below the previously agreed $44 billion bid.
Overnight, Tesla shares closed up 5.71%.
Twitter CEO: Be prepared for all scenarios
Agrawal wrote: “Yesterday (Thursday) we announced changes to our leadership team and operations. Some people have been asking why the ‘lame duck’ CEO is still making a These changes. The simple answer is: while I expect the deal to close, we need to be prepared for all scenarios and always make the right decisions for Twitter.”
Agrawal announced on Thursday that two executives were leaving and that the company would suspend most hiring and seek spending cuts, according to an internal notice on Twitter.
“People also ask: Why start cutting now instead of waiting until the deal closes?” Agrawal wrote. “Our industry is facing a very challenging macro environment. Important decisions that need to be made for the health of the company, and neither will other Twitter leaders.”
According to reports, Musk did not inform the relevant Twitter personnel in advance before posting the above tweet. Twitter will still provide Musk with all relevant information under the terms of the contract, given that it has since said it is “still committed to the acquisition.”
Dan Ives, an analyst at Wedbush Securities, warned that if the deal fell through, Twitter would be worth about $20 as a public company.
Twitter shares closed at $40.72 on Friday, well below the $54.20 offer Musk offered last month.
Musk’s plan
What’s unclear is whether Musk’s tweet should be viewed as a negotiating tactic, or a warning to abandon the deal?
After all, Twitter’s problems with spam and fake accounts are long enough that Musk himself has tweeted about it several times over the past few years.
What’s more, when Musk agreed to buy Twitter last month, he decided to forgo due diligence in order to get Twitter to accept its “best and final offer.”
Susannah Streeter, senior investment and market analyst at the investment bank Hargreaves Lansdown, said: “Given that Musk’s original acquisition seemed to be aimed at increasing free speech rather than creating wealth, it is true that the issue of fake accounts is being raised at this time. Doubt the reason behind it.”
Given the recent slump in technology stocks and drastic changes in market conditions and investor preferences, many Wall Street analysts believe that Musk’s move is intended to seek a cheaper acquisition price.
Under the pressure of rising inflation in the United States, the unsolvable disruption of the global supply chain, the situation in Russia and Ukraine, and the accelerated rate hike by the Federal Reserve, US stocks have plummeted more recently, and the Internet sector has been the first to bear the brunt. Year-to-date, Google’s parent company Alphabet has fallen nearly 20%, Meta Platfroms has tumbled more than 40%, and Snap has plummeted 47%.
In contrast, boosted by the acquisition news, Twitter fell only 5.78% over the same period.
Bernstein senior research analyst Toni Sacconaghi also sees it as a negotiating tactic to seek lower bids. “The market has fallen sharply, and Musk may be using active user events as a negotiating tactic,” he said.
In fact, since the close on the 25th of last month, when Twitter accepted Musk’s offer, the Nasdaq has fallen by 11%.
Truist Securities analyst Youssef Squali predicts that Musk will try to lower the offer by 15%-20% to $46 or $43 per share. “This move will allow it to significantly reduce its reliance on Tesla stock while improving its financing capabilities,” Squally said.
To fund the acquisition, Musk sold about $8.5 billion worth of Tesla stock late last month, according to filings with the U.S. Securities and Exchange Commission.
On the other hand, the recent slump in Tesla’s stock price and the emergence of regulatory concerns have indeed cast a shadow over the acquisition prospects.
Indeed, the trade-offs in Twitter and Tesla’s stock price overnight largely reflect rapidly waning investor expectations for a smooth completion of the deal.
Tesla shares have fallen 29% since Musk announced the acquisition.
Sacconaghi believes that Tesla shareholders are not happy to see Musk as CEO of another company, “it will distract him from the management of the company.”
Meanwhile, the U.S. Securities and Exchange Commission (SEC) is investigating Musk’s delayed disclosure of a trade that increased his Twitter holdings. According to foreign media reports, Musk disclosed to the SEC on the 4th of last month that he held more than 9% of Twitter’s shares, which was at least 10 days delayed from the required disclosure date.
The breakup fee could be more than $1 billion
According to the previous agreement, if Musk terminated the deal or failed to deliver the acquisition funds as promised, he may have to pay Twitter a $1 billion breakup fee.
On the other hand, if the seller has fraudulent acts such as untrue information, which has a so-called “material adverse effect”, the buyer will be exempted from paying the above fees. It is unclear whether Twitter’s share of spam and fake accounts is significantly higher than 5%, and whether this will trigger the “material adverse effect” clause.
Foreign media quoted M&A lawyers familiar with the matter as saying that if Musk gave up the acquisition simply because he felt that the price was too high, in addition to charging a fee of $1 billion, Twitter could sue him, and the amount of compensation could reach dozens of dollars. One hundred million U.S. dollars.
A similar situation happened in 2020. Due to the sharp impact of the epidemic, in September of that year, luxury goods group LVMH intended to withdraw from the $16.2 billion acquisition of Tiffany’s. Tiffany sued and asked to enforce the agreement. Subsequently, LVMH filed a counterclaim, accusing Tiffany of mismanagement and paying high dividends to shareholders despite huge losses during the epidemic. Ultimately, the two parties settled and lowered the purchase price from $16.2 billion to about $15.8 billion. The transaction was finally completed in July 2021.
Author / Gravill
