News Analysis

Twitter’s board plans to fight Musk, but will it succeed?

by Dan Byrne on Jul 12, 2022

Uncertainty surrounds the acquisition deal between Twitter and South African business magnate Elon Musk. The board is determined to see it through, but in Musk’s eyes, the deal is already history, and any attempts to resurrect it are laughable.

What has caused the standoff?

In April, Elon Musk offered to buy Twitter for $44 billion. Reports of complications with that deal began to surface in May, which included disagreements over the dismissal of high-ranking Twitter employees and suggestions that around 5% of the social media platform’s user base were spam bots. At the time, Musk announced the deal was “on hold.”

This month, Musk terminated the deal entirely, citing the above issues.

What does Twitter’s board want now?

The board of Twitter wants the deal done – plain and simple.

Its swift response to Musk’s announcement of terminations has demonstrated that it will not simply walk away from the agreement quietly. If anything, it’s quite the opposite. It is steadfast in saying that every action up till now has been genuine and that it complied with Musk’s request for further information on spam accounts when asked.

In the board’s eyes, it and the company have done nothing wrong and want their agreement honoured in full.

A possible discount?

In addition, the board will likely be concerned about Musk’s ability to reduce the deal’s value. The current price tag is $44 billion, but things have changed since that figure was agreed on. Tumbling share prices combined with allegations of withholding information might lay the groundwork for an argument that the company should be sold for less.

Indeed, Musk himself said in May that buying the company for a lower price was “not out of the question”, so even though he has publicly detached himself from the purchase, the possibility remains that it may be a longer game to reduce his bill.

Twitter’s board is also determined that this does not happen. Bret Taylor’s chair tweeted that he wants to see the deal done “on the price and terms agreed upon with Mr Musk.”

“We are confident we will prevail in the Delaware Court of Chancery,” he added.

Can Twitter’s board get what it wants?

In short, yes. The board stands every chance of bringing this deal to the conclusion it wanted.

This stems from the opinion of legal experts familiar with the situation, who have said that Musk’s complaints are not grounds enough to cancel the deal entirely. At the bare minimum, he could be forced to pay a penalty fee of $1 billion for walking away unilaterally and more if Twitter’s legal team prevails in court.

However, while it’s technically possible for the board to succeed, there are dangers.

Pressure is mounting on the board from other areas. For example, share prices – which had been dropping since the acquisition was announced over fears it would fall through – tumbled even further when Musk announced he was walking away.

A pyrrhic legal victory

Meanwhile, investors are worried that the company’s fortunes will remain the same even if the board wins its legal battle against Musk. The inevitable release of internal business metrics mandated by the court battle could continue to spook investors; the Washington Post reported this week.

This would leave the board in an even worse situation than it is now, with little to gain in compensation.

“It puts the Twitter board in a tough position,” Standford business professor David Larcker told the paper. “Either the court is going to force him [Musk] to buy the company, the court is going to let him off the hook with a buyout — or something else is going to happen.”

Mark Zgutowicz, an equity research analyst at investment banking The Benchmark Company, has warned that to make the ultimate success out of what will likely become a messy legal fight, the board “must contemplate the potential harm to its employee and shareholder base of any additional internal data exposed in litigation.”

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