Investors finally have an update on Elon Musk’s quest to acquire Twitter (NYSE:TWTR); it may not happen. This week began with news that Musk may be exercising his right to back out of the deal. The Tesla (NASDAQ:TSLA) CEO’s legal team has penned a letter to Twitter’s legal department in which he accused the company of not complying with its end of the agreement. This news has pushed TWTR stock down today while Wall Street waits for more information.
What’s Happening With TWTR Stock
TWTR stock is down this afternoon after a turbulent morning. This type of volatility is typical when clouds of uncertainty loom over a stock. TWTR closed last week in the red as the Hart-Scott-Rodino waiting period for the deal expired with no clear direction in sight. As of this writing, the stock has not recovered the ground it lost.
While TWTR stock has fallen, TSLA stock has been rising. These trading patterns lend support to the argument that Musk acquiring Twitter would not be good for his primary company. Now the TSLA stock investors who did not approve of Musk’s Twitter mission may be about to get their wish.
A Breach of Rights?
Musk’s team directed the letter to Vijaya Gadde, Twitter’s Chief Legal Officer. In it, they made strong accusations against the social media giant’s leadership. The letter centered around the fact that Musk believes Twitter has been resisting his demands to provide information on the platform’s bot count. As it states:
Based on Twitter’s behavior to date, and the company’s latest correspondence in particular, Mr. Musk believes the company is actively resisting and thwarting his information rights (and the company’s corresponding obligations) under the merger agreement. This is a clear material breach of Twitter’s obligations under the merger agreement and Mr. Musk reserves all rights resulting therefrom, including his right not to consummate the transaction and his right to terminate the merger agreement.
Since negotiations began, Musk has made it clear that he wants to know exactly how much of Twitter’s user base is comprised of bots or fake accounts. When Twitter reported the number to be less than 5%, Musk wanted to see proof, stating that until he did, the deal could not continue. While he attempted to use this as a bargain tool to secure a lower price point, some saw it as a convenient way of backing out of the deal. Now it appears that Musk is considering taking that escape hatch, confronted with the reality that Twitter isn’t worth $44 billion.
What Comes Next
All this raises the question of what will happen if Musk backs out of buying Twitter? The short answer is that TSLA stock investors will breath a sigh of relief. Wall Street did not like the idea of Musk compiling his assets under one overarching company. Now investors may be able to avert that crisis.
TWTR stock likely won’t be too affected if Musk backs out. While its investors won’t be receiving the $54 per share payout they were promised, it will be business as usual for the company. Social media stocks have been facing a bleak market landscape since Snap’s (NYSE:SNAP) plunge late in May on negative earnings. But with the Musk deal behind it, TWTR will able to move forward again.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
