Shares of Twitter plummeted on Monday afternoon on the prospect of a prolonged legal fight between the social media company and billionaire Elon Musk, who says, leaving Twitter's future in doubt.
In Bloomberg.on Friday, Musk claimed that Twitter refused to provide enough information about the number of fake accounts it has and that Musk's advisors determined the true incidence of bots on the platform is "wildly higher" than Twitter claims. The social media platform then vowed to challenge Musk in court to uphold the agreement, and has hired powerhouse law firm Wachtell, Lipton, Rosen & Katz in preparation for filing a lawsuit this week in Delaware Court of Chancery, according to
Generally, acquisition agreements are exceeedingly difficult to get out of. "Once you're into the world where you already have the agreement, it's rare for people to try to pull out," said Mathieu Shapiro, managing partner at Obermayer, who specializes in business litigation. "As a basic premise, the Delaware court will want to enforce that merger agreement, and that will be their starting place."
Battle over bots
Musk's efforts to pull out hinge on the question of how many bots and fake accounts are on the platform.
Twitter said last month that it was making available to Musk a "firehose" of raw data on hundreds of millions of daily tweets. It has said for years in regulatory filings that it believes about 5% of the accounts on the platform are fake.
However, Musk has continued to raise doubts about the issue, and one Monday taunted the company, using Twitter, over what he has described as stonewalling.
Musk will have to demonstrate either that Twitter deliberately lied about how many bots it had or that executives suspected they had a bot issue but chose to ignore it, said Shapiro, who predicted that it will be an exceedingly difficult bar to meet. However, if Musk successfully makes that case — a big if — he could conceivably persuade a judge to let him walk out of the deal.
"Twitter makes money either through ads or selling information about what people are doing and looking at. Each of those things is dependent on the number of real people" using the platform, Shapiro said. "That goes to the heart of what is twitter's essential business."
Musk agreed to a $1 billion break-up fee as part of the buyout agreement. But a court could also force Musk to complete the deal and buy Twitter, according to the terms of the agreement.
"For Twitter this fiasco is a nightmare scenario and will result in an Everest-like uphill climb for Parag & Co. to navigate the myriad of challenges ahead around employee turnover/morale, advertising headwinds, investor credibility around the fake account/bot issues, and host of other issues abound," Wedbush analyst Dan Ives, who follows the company, wrote Monday.
Twitter shares fell 10%, to $33.13 share, as of 3 p.m. Eastern on Friday — far from the $54.20 that Musk agreed to pay for the company. That suggests, strongly, that Wall Street has serious doubts that the deal will go forward. Ives predicts the stock price will fall even further, to $30 a share.
"A messy divorce would be an improvement on this situation," Ives told CBS News.
The Associated Press contributed reporting.
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