Twitter drops $2.5bn in market value as Musk bust-up heads to court

Tesla shares are also hit in the wake of the 'disruptive' saga of Musk's attempt to buy the social media platform

Mon, 11 Jul, 2022 - 18:47

Divya Balji

Twitter shares tumbled after Elon Musk walked away from his $44bn deal to buy the company, setting the scene for a disruptive legal battle. The shares dropped 9%, on track to erase about $2.5bn (€2.48bn) in market value, after Mr Musk backed out of an agreement to buy the social-media giant and take it private.

Shares in Tesla, the electric carmaker that Mr Musk leads, fell by over 6%.

Twitter shares have been trading well below the $54.20-per-share offer Mr Musk made in April. The billionaire alleges that Twitter misrepresented user data, saying the number of spam bots on the platform is much higher than the company has disclosed. The stock has also been falling along with the tech sector amid rising interest rates.

“It’s not a huge surprise to anyone that Musk is trying to abandon the deal,” said Vital Knowledge founder Adam Crisafulli. “The problem, though, is that this whole saga was probably quite disruptive over the last few months which could weigh on Twitter’s performance not only in the second quarter but third quarter too.”

With a $1bn breakup fee on the line, traders are bracing for more chaos as Twitter takes Mr Musk to court.

Twitter chairman Bret Taylor said the company will pursue legal action in order to close the transaction “on the price and terms agreed by Mr Musk".

The company has hired merger-law heavyweight Wachtell, Lipton, Rosen & Katz and aims to file suit early this week, according to people familiar with the company’s plans.

Twitter has denied Mr Musk’s claims, saying bots are less than 5% of the total users, with executives repeating as recently as Thursday that their estimates are accurate.

“They are going to require Musk to do the deal even though he says it is terminated, and they have what I would say is a greater than 50% chance that they will win,” said market strategist Cabot Henderson at Jones Trading.

“Musk getting away with just paying $1bn would be a big win for him,” the strategist said. All eyes will be on the company’s quarterly earnings results expected to be released later this month. For its first-quarter financials, revenue rose to $1.2bn, missing analysts’ estimates amid in a slowdown in advertising.