FILE – Elon Musk attends The Metropolitan Museum of Art’s Costume Institute benefit gala celebrating the opening of the “In America: An Anthology of Fashion” exhibition on May 2, 2022, in New York. Twitter’s stock slid more than 6% before the market open Monday, July 11, 2022, after billionaire Elon Musk announced late Friday that he will abandon his $44 billion offer to buy Twitter and the company said it will sue the Tesla CEO to uphold the deal.(Photo by Evan Agostini/Invision/AP/File)
NEW YORK (AP) — Shares of Twitter slumped almost 10% in the first day of trading after billionaire Elon Musk said that he was abandoning his $44 billion bid for the company and the social media platform vowed to challenge Musk in court to uphold the agreement.
Twitter is now preparing to sue Musk in Delaware where the company is incorporated. While the outcome is uncertain, both sides are preparing for long court battle.
Musk alleged Friday that Twitter has failed to provide enough information about the number of fake accounts it has. However, Twitter said last month that it was making available to Musk a ″ fire hose ” of raw data on hundreds of millions of daily tweets when he raised the issue again after announcing that he would buy the social media platform.
Twitter has said for years in regulatory filings that it believes about 5% of the accounts on the platform are fake but on Monday Musk continued to taunt the company, using Twitter, over what he has described as a lack of data. In addition, Musk is also alleging that Twitter broke the agreement when it fired two top managers and laid off a third of its talent-acquisition team.
Musk agreed to a $1 billion breakup fee as part of the buyout agreement, though it appears Twitter CEO Parag Agrawal and the company are settling in for a legal fight to force the sale.
“For Twitter this fiasco is a nightmare scenario and will result in an Everest-like uphill climb for Parag & Co. to navigate the myriad challenges ahead around employee turnover/morale, advertising headwinds, investor credibility around the fake account/bot issues, and host of other issues abound,” Wedbush analyst Dan Ives, who follows the company, wrote Monday.
The sell-off in Twitter shares pushed prices close to $33 each, far from the $54.20 that Musk agreed to pay for the company. That suggests, strongly, that Wall Street has serious doubts that the deal will go forward.
While the outcome of any protracted legal battle cannot be known, experts in the legal and business sectors believe Twitter likely has a stronger case.
Morningstar analyst Ali Mogharabi noted that, regarding the spam user count Musk is so focused on, Twitter has “for years explicitly stated in regulatory filings that the ‘’below 5%’ spam count may not be accurate given that it is based on a sample and requires a lot of judgment.”
Given current market conditions, Mogharabi said, Twitter may also have a “solid argument that the layoffs and firings of the past weeks represent “an ordinary course of business.”
“Many technology firms have begun to control costs by reducing headcount and/or delaying adding employees,” he said. “The resignations of Twitter employees cannot with certainty be attributed to any change in how Twitter has operated since Musk’s offer was accepted by the board and shareholders.
Tech industry analysts say Musk’s interlude leaves behind a more vulnerable company with demoralized employees.
“With Musk officially walking away from the deal, we think business prospects and stock valuation are in a precarious situation,” wrote CFRA Analyst Angelo Zino. “(Twitter) will now need to go at it as a standalone company and contend with an uncertain advertising market, a damaged employee base, and concerns about the status of fake accounts/strategic direction.”
The uncertainty surrounding who may be at Twitter’s help, Mogharabi said, could also lead advertisers to curtail their spending on the platform.
But “the drama” surrounding the deal, he added, “will also likely attract new users to the platform and increase engagement, especially given the upcoming midterm elections, which could convince advertisers to cut a bit less. In the long run, we think Twitter will remain one of the top five social media platforms for advertisers.”
Copyright 2021 Associated Press. All rights reserved.
Source: https://apnews.com/article/elon-musk-twitter-inc-technology-9677ce832c7773e37142fb639cb777c2
