Few Obvious Contemplations and Street Impacts of Elon Musk’s Willfully Lowering His Bid for Twitter

This has been a tumultuous time for global stocks. Many factors such as the unknown path for inflation and post-Covid reopening, as well as severity of Fed’s monetary tightening – has been contributing to the heightened volatility. But the whole story is dwarfed compared with really chaotic things around the Elon Musk-Twitter (TWTR) saga. Shares of loss-making Twitter jumped 33% on April 4th when Musk first expressed readiness to buy the controlling stake in the social platform, but ever since they have been steadily declining from above $50 to today’s below $40 apiece.

This week the billionaire again warned that he could walk away from the $44B acquisition if the platform does not provide detailed information on spam and fake accounts. "This is a clear material breach of Twitter's obligations," Musk's lawyers wrote in a letter, adding that the company was "actively resisting and thwarting his information rights." In the past, Twitter CEO Parag Agrawal has said he "doesn't believe that this specific estimation can be performed externally, given the critical need to use both public and private information (something unattainable in principle)."

It's even more interesting as Elon Musk didn't want to do any extensive due diligence when abruptly announcing the deal back in April (see above). At the time, what he only wanted was to complete the acquisition as soon as possible, but then all of a sudden pressed the brakes while full speed – ostensibly, over the fake accounts issue, which is not the first time the topic has surfaced. While Musk has agreed to pay $54.20 per share for Twitter, the company's stock price is now trading at $39.56, which is significantly lower than where things stood even several weeks ago and makes it less and less likely that the deal is still possible on former terms. It's fairly obvious that Musk has buyer's remorse and he is trying whatever to get a mark-to-market deal, and he may actually succeed. So instead of investors trying to reap the fruit of Musk’s supremacy over TWTR, things can go awry for them as Musk, conversely, drags the price closer and closer to the lower end.

From a legal perspective, the only way Musk could abandon the deal is a refusal from the banks to provide financing or regulators block the transaction. Lawyers for the Tesla (TSLA) CEO may be trying to link the bots issue to his ability to secure financing, allowing him to walk away by paying a $1B breakup fee (Texas on Monday opened a separate investigation into Twitter's alleged fake accounts based on the state's Deceptive Trade Practices Act). However, Twitter's disclaimers used in its projections on spam accounts and a "specific performance" clause could give it protection against potential lawsuits, and Musk would have to prove that he was deliberately misled.

Outlook: Twitter intends to enforce the merger pact on the agreed-upon terms, but could renegotiate if it sees a protracted legal battle or maneuvering for Musk to keep his window open to jump ship out of a deal. If that is the case, Twitter shares could sink even further, making it a bigger acquisition target for other buyers at a cheaper price. Twitter shareholders are not the only ones watching the show as Tesla investors also have vested financial interest.