Twitter shares fell more than 9 percent on the first day of trading after billionaire Elon Musk said he would drop his $44 billion bid for the company and the social media platform vowed to challenge Musk in court to keep the deal.
Twitter is now preparing to sue Musk in Delaware, where the company is incorporated. While the outcome is uncertain, both sides are preparing for a lengthy court battle.
Musk alleged on Friday that Twitter did not provide enough information about the number of fake accounts on its service.
However, Twitter said last month that it was making a “fire hose” of raw data available to Musk in hundreds of millions of daily tweets when it raised the issue again after announcing that it would buy the social media platform.
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Twitter has said for years in regulatory filings that it believes about 5 percent of accounts on the platform are fake. But on Monday, Musk continued to mock the company, using Twitter, for what he described as a lack of data.
Additionally, Musk also alleges that Twitter broke the acquisition deal when it fired two top managers and laid off a third of its talent acquisition team.
Musk agreed to a $1 billion breakup fee as part of the purchase deal, though it appears Twitter CEO Parag Agrawal and the company are preparing for a legal fight to force the sale.
“For Twitter, this fiasco is a nightmare scenario,” Wedbush analyst Dan Ives, who follows the company, wrote on Monday. He said the result would be “an Everest-like uphill climb for Parag & Co.” given concerns about employee morale and retention, advertiser concerns, and other challenges.
The sell-off in Twitter shares pushed the share price below $34, far from the $54.20 Musk agreed to pay for the company. That suggests Wall Street has serious doubts the deal will go ahead.
Many experts in the legal and business sectors believe that Twitter likely has a stronger case.
Morningstar analyst Ali Mogharabi noted that Twitter has outlined its estimate of fake and spam accounts for years in regulatory filings, while explicitly noting that the number might not be accurate given the use of data samples and interpretation.
Given current market conditions, Mogharabi said, Twitter may also have a strong argument that the layoffs and layoffs of recent weeks represent “a normal course of business.”
“Many tech companies have started to rein in costs by downsizing and/or delaying employee onboarding,” he said. “The Twitter employee resignations cannot be attributed with certainty to any changes in the way Twitter has operated since the board and shareholders accepted Musk’s offer.”
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Tech industry analysts say the Musk interlude leaves behind a more vulnerable company with demoralized employees.
“With Musk officially walking away from the deal, we believe the business outlook and stock valuation are in a precarious state,” CFRA analyst Angelo Zino wrote. “(Twitter) will now have to act as an independent company and deal with an uncertain ad market, a damaged employee base, and concerns about fake account status/strategic direction.”
Uncertainty over who will run Twitter, Mogharabi said, could lead cautious advertisers to cut spending on the platform.
But the drama surrounding the deal, he added, will also likely draw new users to the platform and increase engagement, particularly given the upcoming midterm elections. That, she said, might convince advertisers to cut back a little less.
Ultimately, he said, “we think Twitter will remain one of the top five social media platforms for advertisers.”
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