A controversial move from the get-go, Tesla (NASDAQ:TSLA) CEO Elon Musk’s deal to buy Twitter (NYSE:TWTR) generated international headlines. However, since the conclusion of negotiations, Musk appears to have developed cold feet, attempting to back out. In response, Twitter filed a lawsuit and a motion to expedite it – one which a Delaware court granted. TWTR stock is up over 3% this afternoon.
Initially, Musk’s motivations for acquiring Twitter focused on facilitating all voices a chance to be heard in public discourse. “Free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated,” Musk said in a statement announcing the buyout of TWTR stock. “Twitter has tremendous potential — I look forward to working with the company and the community of users to unlock it.”
However, not everyone was happy. As the New York Times pointed out, Twitter “has had an outsize role in shaping narratives around the world. Political leaders have made it a megaphone, while companies, celebrities and others have used it to hone images and build brands.”
Shortly thereafter, however, the controversy erupted. Musk accused Twitter of not being forthcoming about the platform’s number of bots and spam accounts and withholding data needed to assess the problem.
Presenting oral arguments before Delaware Court of Chancery, Twitter claimed that Musk’s arguments represented bad-faith attempts to back out of the deal due to buyer’s remorse. The judge declared that a five-day trial will commence in October, a shorter timeframe than Musk was seeking.
A Complicated Narrative for TWTR Stock
Although securing an October trial represents a victory for Twitter, it’s essentially a run in the early innings of the World Series. And while merger and acquisition experts agree that the social media firm has the stronger legal argument, that by itself does not guarantee a positive outcome for TWTR stock.
For one thing, the courtroom can be an unpredictable environment. History is replete with examples of both civil and criminal suits that have ultimately gone the contrarian route. Also, it’s fair to point out that Musk will almost surely hire one of the best legal teams money can buy.
Second, even if Twitter comes out victorious in the courtroom, the victory could be Pyrrhic in nature. Essentially, great uncertainties surround the business and the broader social media industry, thus imposing a dark cloud over TWTR stock.
As CNN Business journalist Clare Duffy stated, Twitter “was already struggling to grow its advertising business and user base before Musk’s involvement.”
In addition, Duffy noted that, “Twitter needs a swift resolution to the battle with Musk in order to limit the uncertainty for its shareholders, employees and customers, and any fallout for its business that could be exacerbated by costly, prolonged litigation.”
Why It Matters
Another factor to consider in this legal mess is Musk’s reputation. Known for stirring the pot, he appears to relish the spotlight.
Though attorneys ethically should avoid irrelevant character attacks, it happens rather frequently. In addition, the scope of Musk’s outbursts may unfavorably influence the upcoming proceedings.
Therefore, it may be anyone’s guess how this play outs for both the tech pioneer and TWTR stock.
On the date of publication, Josh Enomoto 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.
