Shares of Twitter (NYSE:TWTR) are down 4% today on reports that Elon Musk’s deal to buy the social media company is in serious jeopardy. Before today, TWTR stock had declined 9% this year to trade at $38.79.
Musk, who is the CEO of electric vehicle (EV) maker Tesla (NASDAQ:TSLA), has been threatening to walk away from the $44 billion deal to buy Twitter after raising concerns about the number of fake accounts on the platform. But The Washington Post is reporting Musk has now stopped engaging in funding discussions that would see him pay $54.20 per share to acquire Twitter.
What Happened to TWTR Stock
According to The Washington Post article, Musk’s team has determined that it can’t verify the number of fake and spam accounts on Twitter. They are preparing to make a change in direction, possibly canceling the proposed acquisition.
Should he walk away from the deal, Musk, whose net worth is estimated to be $234 billion, would need to pay a $1 billion break-up fee. However, Twitter’s management could try and hold Musk to the original terms of the deal, and the matter would almost certainly end up in court.
Twitter shareholders have already filed a lawsuit against Musk, claiming that he has been deliberately manipulating the price of the company’s stock since agreeing to buy Twitter so that he can negotiate a lower price for the company. The lawsuit allows any TWTR shareholders to receive financial compensation from proceeds of the legal action.
Why the Twitter Deal Matters
Earlier this week, Twitter held a briefing with reporters to explain how it identifies fake accounts on the platform. It previously reported that less than 5% of its accounts are fake based on internal data. However, Musk continues to claim Twitter dramatically underreports the number of fake accounts on its platform.
In a series of Tweets and public comments, Musk has been criticizing Twitter over the fake account and spam issue, and has threatened multiple times to scuttle the deal. For its part, Twitter’s management team reiterated this week that “We intend to close the transaction and enforce the merger agreement at the agreed price and terms.”
That Musk’s acquisition of Twitter may now be called off and land in court is bad news for the social media company and its shareholders. Musk said he planned to take Twitter private after buying it and improve the social media company before returning it to the public markets. Where Twitter would go should Musk not buy the company is unclear.
What’s Next for TWTR Stock
No formal announcement calling off Musk’s purchase of Twitter has been made, and the deal could still go through. But reports that Musk is no longer engaging in financing discussions related to the acquisition are reason for concern and serving to push TWTR stock lower. The drama around this deal looks likely to continue in coming days and weeks.
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.
