The Fallout of the Twitter-Musk Deal

26 July 22

Elon Musk is in the headlines again. But this time it is not the launch of a new Tesla or another breakthrough in space travel. Mr. Musk was to acquire Twitter in the beginning of July for $44bn. However, he backed out of the deal accusing Twitter of withholding information about fake accounts.

This prompted Twitter to sue Elon Musk shortly after. Twitter’s lead attorney William Savitt stated that the uncertainty about the takeover “inflicts harm on Twitter everyday”. Much to Musk’s dismay the judge in the state of Delaware agreed with Twitter’s legal team to set an early trial date in September this year.

Delaware state courts specialize in merger and acquisition disputes and are notorious of their quick turnaround. We can expect to know the outcome of this dispute by the end of the year.

It is a known fact that 80 to 92 percent of cases never reach the courtroom as both parties decide to settle. Many believe that Musk still wants to acquire Twitter and this is just a ploy to knock down the purchase price.

On the other hand, if Mr. Musk still wants to acquire Twitter, his accusations of the other party not disclosing the real percentage of fake accounts is damaging the company’s reputation, which is not an ideal strategy. 

As most of Twitter’s revenue is ad-based, such accusations dampen the possibilities of acquiring and retaining clients. This is the main reason why Twitter wants this whole dispute to be solved quickly.

Currently Twitter’s shares stand at around $39.45 which is significantly less than the $54.20 per share that was the agreed purchase price between Elon Musk and Twitter. This is not the reason why Mr. Musk does not want to buy the company anymore as he is likely to be the main contributor to the company’s share price drop.

The likely scenario is that Mr. Musk will settle by paying Twitter some amount of money to move on from the deal.

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