Twitter Shares closed 8 percent on Wednesday as Wall Street appeared to be reviewing the lawsuit filed against Elon Musk tip in favor of the company.
On Tuesday Twitter filed a complaint against Musk to force his $44 billion acquisition of the company. Musk tried to walk away from the deal on July 8, saying Twitter had violated the merger agreement because of: “false and misleading representations” the company made about the number of bot and spam accounts on the platform.
However, Twitter, Wall Street and others believe Musk won’t get away with it.
†This is now turning into a game of odds/legal analysis as the debate surrounding Twitter’s case against Musk begins to factor into the stock. We think many investors spent last night reading the matter and finally concluded that this Game of Thrones battle in court will result in a version of a Twitter win,” Wedbush analysts wrote on Wednesday.
An investment firm, better known as a short-seller, tweeted that it is now taking a long-term position on Twitter, betting that the company will likely have the upper hand over Musk. “We have built a significant long position in Twitter stocks. Twitter’s complaint poses a credible threat to Musk’s empire.” wrote Hindenburg Research, a company founded by Nate Anderson.
Musk agreed to buy Twitter on April 25, 2022. Its takeover bid of $54.20 per share was a 38 percent premium over Twitter’s stock price at the time. Since then, the general market has taken a downturn, as has Tesla’s stock, which Musk used as part of his financing for the Twitter deal.
Twitter argued in its complaint that the fall in the stock market is why Musk wants to get out of the deal.
“After putting on a public spectacle to bring Twitter into play and proposing and then signing a seller-friendly merger agreement, Musk apparently believes he—unlike any other party subject to Delaware contract law—is free to change your mind, disrupt the company, its operations, destroy shareholder value and walk away,” the complaint reads.
Twitter shares have also fallen recently, dropping 20 percent in the past three months. On Wednesday, the stock closed at nearly $37.
As part of the deal, Musk also agreed to a $1 billion rescission fee if the deal failed to close, which some say could go into effect here.
“There are a range of avenues that can come from the Delaware court, including settlement, dissolution fees paid, deal enforced and a host of other outcomes,” the Wedbush analysts wrote. “For now, Twitter’s stock will continue to trade as a standalone foundation (with some incremental value to a win vs. Musk in the courts) as the long and ugly courtroom battle now begins to play out in the Delaware courts with a possible track of September on the calendar.”