July 10, 2022, 9:47 AM
July 10, 2022, 9:47 AM
Courted and then shunned by the world’s richest man, Twitter appears well-positioned to win a court battle with Elon Musk over a break fee of at least $1 billion, but the company won’t come out unscathed.
The outcome of the saga left observers baffled. It was “one of the craziest business stories ever,” said Dan Ives, an analyst at investment firm Wedbush.
“I think it started as a circus show and it’s ending as a circus show,” Ives told AFP.
Musk, founder of the electric car company Teslasent a letter to Twitter on Friday saying it was pulling out of a controversial deal it made in April to buy the platform for $54.20 per share, or a total of $44 billion.
However, such merger deals are “designed to prevent buyers from backing down and deciding to walk away,” says Ann Lipton, a Tulane University law professor who specializes in corporate litigation.
Musk, who also chairs aerospace company SpaceX, accused the social network of making “false or misleading statements” about the number of fake accounts on its platform.
His lawyers also pointed out that Twitter fired employees and stopped hiring, a practice that they consider contrary to the company’s obligation to continue operating normally.
Those arguments may hold water, but they don’t warrant getting out of business altogether, says Lipton, who calls the move “touchy.”
“It’s not enough, unless he can show that the statements (about fake accounts) are not only false, but call into question the fundamental foundations of the agreement,” he explains.
“It gives every impression that Musk is legally in the wrong.”
This opens up the possibility that the billionaire is in fact trying to renegotiate a lower price.
This tactic has been used successfully before, as when two years ago LVMH, the global luxury giant, broke a deal to acquire Tiffany before getting a discount.
However, experts don’t see how Musk and Twitter can agree on a different price at this point, given that the platform’s shares have lost more than a quarter of their value since the end of April.
They both have a lot to loseLipton warns.
If Twitter wins in court, the unpredictable businessman will have to pay at least a billion dollars in damages.
In the worst case scenario, you could be forced to honor your commitment and buy Twitter instead. a price that has become exorbitant, while his fortune has been melting by the tens of billions of dollars in recent months.
Although that would be a victory for the shareholders, the company would be left in the hands of Musk and his libertarian vision of absolute freedom of expression, a position that is not shared by many of the employees, users and advertisers on whom the model depends. I trade the platform.
“Twitter is worse now than it was six months ago, but in the long run, you’ll be better off without it,” says Carolina Milanesi, an analyst at Creative Strategies.
“It’s like a toy that a spoiled kid wants, but doesn’t really know what to do with it, so he gets bored and doesn’t give it the attention it deserves, and forgets it in a corner (…) Twitter would die a slow and painful death.” Milanesi predicts.
– ‘Battle on all fronts’ –
Any court proceedings are expected to take months, especially considering Musk will “draw it out,” Lipton predicts.
“Twitter is in a strong position,” he says.
Nevertheless, Musk “will try to ridicule them, which will be distracting and demoralizing for your employees,” he anticipates.
With more than 100 million followers on the platform, Musk has already shown signs of harassing Twitter with highly critical tweets, with ridicule and outlandish suggestions for use, all celebrated by thousands of fans.
For Twitter, “it’s going to be a battle on all fronts, retaining employees, watching for competition after your business, brand issues, getting investors to believe the numbers,” says Ives, an analyst at Wedbush.
Unlike its Silicon Valley neighbors, Twitter has never been a money-making machine capable of translating its users’ attention into astronomical ad revenue.
“These months have been a huge distraction for Twitter, and have prevented him from focusing on the fundamentals of his business,” says Debra Williamson of eMarketer.
“If Musk is able to undo the deal, Twitter will still be left with the same problems it had before he came on the scene.”
“Its user growth is slowing. And while ad revenue continues to grow marginally, Twitter is now grappling with a slowing economy that could cut ad spending across all social platforms.”
