Deal or no deal, Elon Musk could upset Twitter business for a long time

Twitter (TWTR), in the meantime, it remains understood that the acquisition will be successful. In a statement to CNN Business on Tuesday, the company said it intends to “close the transaction and enforce the merger agreement.”

Musk’s comings and goings with the company are widely seen as setting the stage for either renegotiating the offer price, or withdrawing from the deal entirely. No matter what happens next, however, one thing is certain: Musk has created a big mess for Twitter, the effects of which won’t be easily or quickly undone. And in the meantime, the company’s employees, users and shareholders hang in the balance.

In one scenario, Twitter is bracing for an innovative but erratic billionaire owner who is expected to cut some staff, overhaul the leadership team, and potentially undo years of content moderation efforts with uncertain results for advertisers, users, and staff morale who remains.

In another scenario, Twitter faces the prospect of a lengthy legal battle with the richest man in the world if he tries to back out of the deal, not to mention the possibility of other buyers getting out of the wood. The result could be endless background noise that adds to the challenges for Twitter to keep staff and regain momentum.

As Wedbush analyst Dan Ives said on Friday, after the Tesla (TSLA) and SpaceX CEO first said he was putting the deal “temporarily on hold” over the spam account problem, the “Twitter circus show” turned into a “Friday the 13th horror show. “.

A prolonged struggle

From the start, there have been doubts about the ongoing deal, even on Musk’s part. Shortly after announcing his offer to buy Twitter last month, Musk said in an onstage interview at the TED conference: “I’m not sure I’ll actually be able to acquire it.” Industry watchers have also wondered if Musk will be able to finance the acquisition. The recent decline in Tesla stock, which it is using in part to support its financing of the deal, only added to these concerns.

Twitter’s stock traded considerably below Musk’s $ 54.20 per share offered during the deal process, an indication of investor skepticism about completing or completing the deal at that price. As of this week, Twitter’s shares have wiped out all earnings since Musk first revealed he was acquiring a large stake in the company earlier last month.

With his latest public statements, Musk has raised the possibility that Twitter has significantly underestimated the amount of spam and fake accounts on its platform in its quarterly disclosures, although it has not yet provided any evidence to support that claim. In the process, some legal experts say, Musk appears to be trying to lay the groundwork for arguing that inaccurate information would constitute a “material adverse event,” which could authorize him to withdraw from the deal.

But the limit for such a claim is high. Twitter has been making the same standard disclosure – that spam accounts make up less than 5% of its active users – for many quarters. Additionally, a recent stock filing by Twitter revealed that Musk waived due diligence before making his offer to buy Twitter. The fact that concerns about spam could nullify the deal is all the more curious considering Musk said part of his motivation to acquire Twitter in the first place was to free him from such accounts.

If Musk eventually tries to pull out of the deal, he could be on the prowl for a $ 1 billion breakup fee. He could also effectively open the door to litigation from Twitter to enforce the terms of the merger agreement and force him to buy the company.

Brian Quinn, a professor at Boston College Law School, told CNN Business that Twitter is in “a very strong legal position” if it tries to go to court and force the deal on original terms. But there are still commercial risks for Twitter to go that route, which could prompt the company to negotiate a slightly lower deal price.

As Wedbush’s Ives said: “Then he gets caught in court for 12-18 months. It’s a noticeable tweak on Twitter and it just becomes a fiasco as they’re basically involved in this circus show.”

Twitter and Musk did not respond to a request for comment.

Challenges for Twitter in both cases

Even if the deal is completed, the company could still find itself in a period of severe turbulence.

Musk said he intends to remove restrictions on content on the platform in the name of what he calls “free speech,” by which he said he means all legal talk in the various markets in which Twitter operates. Musk also said he will restore former President Donald Trump’s account to the platform and lift many of the permanent bans Twitter and other platforms have used to deal with repeated violators of their rules.

Such steps could bring Twitter closer to some less moderate social media sites popular with conservatives that have yet to gain significant traction, in part, some say, because many users and advertisers prefer not to be on platforms full of malicious content like misinformation and harassment.

“Places that are just cesspools without content moderation haven’t taken off,” said Kirsten Martin, a professor of technological ethics at the University of Notre Dame. Therefore, there may be a conflict between Musk’s stated goal of growing Twitter’s business and his plans for how to manage content moderation.

Elon Musk's Bumpy Road to Own Twitter: A Timeline

If the deal doesn’t go through, Twitter could still face a new scrutiny of its business, spam accounting methods, and content moderation decisions, after Musk spent weeks criticizing the company about these. fronts.

For much of its life as a public company, Twitter has struggled to grow its audience and raise its share price. Before Musk took a share last month, Twitter’s stock was trading below the closing price since its first trading day more than eight years ago.

If the deal fails, it could only reignite investor pressure on Twitter to support growth, and to do so at a time when the tech sector at large is in trouble. It also increases the likelihood that other buyers might want to grab the company at a discount to what Musk offers.

In a regulatory filing this week, Twitter said its board of directors had considered whether to contact other companies about a potential acquisition. He chose not to do so because Musk’s offer was publicly disclosed and because “other parties were unlikely to have the interest or ability to acquire Twitter … based on the regulatory, financial and enforcement risks applicable to each party. discussed “.

Those unknowns risk adding to the apparent chaos and uncertainty already generated by the acquisition of Musk within Twitter.

“If I’m an employee right now, I’m probably throwing my resume around, looking for new jobs,” said Angelo Zino, senior industry analyst at CFRA Research. “In a situation like this, you could potentially lose some great talent.”

In fact, Twitter has already done so. The company confirmed to CNN Business this week that three senior employees have left the company. Twitter also said last week that it implemented a partial hiring freeze and split from two longtime executives: Consumer General Manager Kayvon Beykpour and Revenue Product Manager Bruce Falck.

Agrawal spoke on Twitter last week about why a ‘lame duck’ “CEO” would make these changes if we are acquired anyway “and the difficult state of the tech sector the company is navigating.

“While I expect the deal to close, we need to be prepared for all scenarios and always do what’s right for Twitter,” he said. “Regardless of the future ownership of the company, we are improving Twitter as a product and business for customers, partners, shareholders and all of you. … Our industry is in a very challenging macro environment right now. I won.” Do not use the deal as an excuse to avoid making important decisions for the health of the company, nor will any Twitter leader. “

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