Elon Musk, the CEO of electric car manufacturer Tesla, withdrew from the $44 billion Twitter Inc (NYSE: TWTR) takeover agreement on concerns over fake account numbers. Musk alleged that the company had violated numerous conditions laid out in the takeover deal. Following Musk’s announcement, the stock of Twitter closed at $36.81, down $1.98, or 5.10%, from its prior close.
In the latest filing, the legal team of Musk has alleged that the San Francisco, California-based Twitter had failed to provide relevant info related to spam accounts, which plays a vital role in the overall performance of the company.
The world’s richest man also stated that he is terminating the deal because Twitter laid-off top management executives and one-third of the human resource team, violating the company’s commitment to “keep the essential elements of its existing organizational structure mostly unchanged.”
Specifically, the filing states, “Twitter is in material breach of multiple provisions of that Agreement, appears to have made false and misleading representations upon which Mr. Musk relied when entering into the Merger Agreement.”
As anticipated, Twitter’s management refuted the allegations. The company’s chairman, Bret Taylor, tweeted that the board has decided to file a lawsuit requesting the court to direct Musk to complete the takeover deal as anticipated earlier.
In April, the micro-blogging platform accepted Musk’s bid of $54.20 per share and gave its nod to transform into a privately run firm. However, Musk issued a statement last month stating that the takeover process is being frozen over important queries, including the percentage of fake users on the platform.
Notably, on Thursday last week, the Washington Post published an article stating that the deal is in peril. Musk, as per the Post, was unable to clearly determine the percentage of fake Twitter accounts despite getting access to the company’s in-house trusted data. The article also speculated on a likely “change in direction” by Musk, and that came true in a day.
Musk also stated that he believed that Twitter’s platform comprised of a minimum of 20% fake users, four times higher than the 5% claimed by the company’s management.
There were reports that Elon Musk’s team has halted funding-related discussions, including the one with the main backer of the deal. Analysts believe that the sharp decline in the share price is also another reason for Musk to back away from the deal, which was initially expected to close this year.
Musk is obliged to pay a breakup fee of $1 billion in case he successfully clears legal challenges in canceling the deal. With Twitter planning to file a lawsuit, Musk, as per the agreement terms, has to prove in court that his decision is based on facts that are severely detrimental to Twitter’s business.
Experts believe that the legal fight between Musk and the 16-year-old Twitter will be long-drawn.
In the meantime, anticipating a smooth takeover, the company’s CEO, Parag Agrawal, had announced a halt to hiring as a portion of a cost-cutting plan. Furthermore, the company has trimmed its human resources team by 30%, to roughly 100 staff. Notably, in May, the company fired Bruce Falckd (revenue product lead) and Kayvon Beykpour (Consumer division head).
With Twitter intending to file a lawsuit against Musk, things don’t look bright for the company, as per Wedbush analyst Daniel Ives. In his write-up to clients, Ives has stated that the suo moto termination of the takeover contract by Elon Musk is a big blow to the company.
Elon Musk’s suo moto termination of the takeover contract is expected to keep the stock of Twitter slightly bearish in the short term.
The historical price chart indicates that the stock of Twitter is descending after facing resistance at 40. The next major support is anticipated at or near 32. Additionally, the stock is trading below its 50-day moving average, while the Chaikin money flow indicator is showing a negative reading. Therefore, we anticipate the stock to remain in a downtrend in the short term.
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