Twitter’s (NYSE:TWTR) stock is slumping today on news reports that Elon Musk is threatening to scrap his $44-billion purchase of the social media company.
Musk, who is best known as the CEO of electric vehicle maker Tesla (NASDAQ:TSLA), is threatening to walk away from his agreement to buy Twitter for $54.20 a share and take the company private. He is claiming that the company is not providing the data he has requested about the number of spam and fake accounts on the social media platform. In a letter to Twitter’s head of legal, Musk claims that Twitter is “actively resisting and thwarting his information rights” and, in the process, violating terms of the proposed acquisition.
The threat of Musk walking away from Twitter has the company’s stock down 2% today at $39 a share. TWTR stock is down 7% on the year.
What Happened
Several weeks ago, Musk requested that Twitter turn over information to him about its testing methodologies to support its claims that bots and fake accounts constitute less than 5% of the platform’s user base, a figure that Musk has questioned publicly. Now, Musk is saying that Twitter has failed to comply with his request for information on spam and bots. In the letter, his lawyers for wrote to Twitter they claimed Musk was within his rights to terminate the 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.
Shares of Twitter continue to trade below Musk’s takeover offer of $54.20 a share. This suggests that many investors doubt the deal will be successful. Some analysts have accused Musk of using the spam and bot issue to try and lower the price he pays to acquire Twitter. They have also criticized the Tesla boss of negotiating publicly to get a better price for the social media company.
For its part, Twitter continues to standby its metrics. In a written statement, the company said:
Twitter has and will continue to cooperatively share information with Mr. Musk to consummate the transaction in accordance with the terms of the merger agreement.
Twitter added that it intends to “close the transaction and enforce the merger agreement at the agreed price and terms.”
Why It Matters
That Musk’s purchase of Twitter might not go through continues to create a cloud of uncertainty around the company and depress its stock price. The legal letter sent to Twitter on behalf of Musk is the clearest indication yet that this multi-billion dollar deal is in jeopardy. Musk has said that the acquisition “cannot move forward” until the company provides proof of its spam and bot metrics.
Shareholders of TWTR stock have filed a class action lawsuit against Musk, claiming that he is deliberately lowering the price of the social media company’s stock to serve his own interests. Specifically, Twitter shareholders accuse Musk of engaging in “unlawful conduct” aimed at sowing doubt about his bid to buy the social media giant. The lawsuit filed in the U.S. District Court for the Northern District of California claims that Musk has repeatedly sought to drive down Twitter’s stock because he wants to walk away from the deal or negotiate a lower purchase price.
What’s Next for TWTR Stock
It remains to be seen what will happen next with Elon Musk’s proposed acquisition of Twitter. Whether the deal ultimately goes through is anyone’s guess. What is clear is that Musk’s repeated public threats to abandon the deal are pushing the price of TWTR stock lower. And this has hurt shareholders in the process. Investors considering taking a position in Twitter might want to wait until the dust settles.
On the date of publication, Joel Baglole did not have (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.
