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The decision Musk has taken to back out of the Twitter deal has caused the company’s shares to crash as a legal battle brews.
Twitter shares (NYSE: TWTR) have sunk by around 7% in premarket trading following reports that Elon Musk had reneged on the acquisition deal. The Tesla (NASDAQ: TSLA) CEO’s attorney has already notified Twitter’s board of his intent to back out of the $44 billion deal.
According to Musk, the issue of bots and fake accounts on the microblogging platform was a major stumbling block. In addition, Musk also stated that Twitter is not being truthful about how much user activity is authentic. Meanwhile, in its defense, Twitter claims to have provided Musk with all the information required to conduct his own investigations. The social media giant maintains that spam accounts comprise only 5% of its monetizable daily active users.
Twitter shares initially slumped approximately 9% after Musk revealed that he was terminating the deal. However, the company’s stock eventually regained some of those losses to trade around 7% lower. As it stands, TWTR is at $33.93 in premarket trading and stands to lose $2.2 billion in market value. Conversely, Tesla shares were trading around 1% higher during the premarket trading session.
Observers Comment on Musk-triggered Twitter Shares Slump
Some observers have offered their take on the Twitter share price situation in light of the new development. For instance, Richard Windsor, founder of research company Radio Free Mobile, suggested that Twitter shareholders should sell now. Although not a Twitter shareholder himself, Windsor explained, “There is still a disconnect between the fundamentals and the share price”. The Radio Free Mobile founder also added:
“If you look at some of where the technology sector has gone over the last couple of months, you could put Twitter’s valuation somewhere between $13 [billion] to $15 billion which is around roughly 50% below even where the share price is today.”
Another observer, Vital Knowledge founder Adam Crisafulli, also weighed in on the development. According to Crisafulli, Musk’s decision to walk away from the Twitter deal is hardly surprising. However, he explains that the ramifications of the broken agreement would severely impact Twitter’s performance in the second and third quarters.
Legal Battle on the Horizon
Musk’s decision to terminate the $44 billion Twitter acquisition deal also portends a legal tussle between both parties. According to Twitter Chairman Bret Taylor, the social media giant intends to pursue legal action against Musk. In addition, Taylor remains adamant that Twitter will close the transaction “on the price and terms agreed upon with Mr. Musk. He also expressed confidence in Twitter emerging victorious in the impending lawsuit. The company has already enlisted the services of leading merger-law specialist Wachtell, Lipton, Rosen & Katz. Furthermore, according to unnamed inside sources, Twitter is looking to file the suit in the first few days of this week. The terms of the original deal specify that the businessman will pay a $1 billion dollar breakup fee.