Deal or no deal, Musk could disrupt Twitter’s business for quite some time

Nearly a month after Twitter agreed to sell itself to Elon Musk in a staggering $44 billion deal, the fate of the acquisition remains very uncertain.

In recent days, Musk has said the deal “can’t move forward” until he sees more information about the amount of spam and fake accounts on the platform, and dismissed Twitter CEO Parag Agrawal’s careful explanations on the matter.

Twitter, meanwhile, remains unwavering that the acquisition will take place.

In a statement to CNN Business on Tuesday (17), the company said it intends to “close the transaction and enforce the merger agreement”.

Musk’s back-and-forth with the company is widely seen as setting the stage to renegotiate the offer price, or else back out of the deal altogether.

No matter what happens next, however, one thing is for sure: Musk has created quite a mess for Twitter, the effects of which will not be undone easily or quickly.

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 employees, overhaul the leadership team, and potentially undo years of content moderation efforts with uncertain results for advertisers, users, and customer morale. employees who remain.

In another scenario, Twitter faces the prospect of a long 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 potential buyers coming out of the woodwork.

The result can be endless background noise that adds to the challenges for Twitter to retain employees and regain momentum.

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

a prolonged fight

From the start, there were doubts about the deal, including from Musk. Shortly after announcing his offer to buy Twitter last month, Musk said in an interview onstage at the TED conference, “I’m not sure I’ll actually be able to acquire it.”

Industry observers have also questioned whether Musk will be able to finance the acquisition. The recent decline in Tesla shares, which he is using partially to fund the deal, has only added to those concerns.

Twitter’s shares traded noticeably below the $54.20 a share that Musk offered throughout the deal process, an indication of investor skepticism about the deal being completed or completed at that price.

As of this week, Twitter shares have wiped out all gains since Musk first disclosed a large stake in the company early last month.

With his latest public statements, Musk raised the possibility that Twitter significantly underestimated the amount of spam and fake accounts on its platform in its quarterly disclosures, although it has yet to provide evidence to support that claim.

In the lawsuit, 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 give him the right to withdraw from the settlement.

But the bar for such a claim is high. Twitter has made the same standard disclosure – that spam accounts make up less than 5% of its active users – for many quarters.

Additionally, a recent Twitter securities filing revealed that Musk waived due diligence prior to making his offer to buy Twitter.

That spam concerns could end the deal is even more curious, considering Musk said part of his motivation for acquiring Twitter in the first place was to rid him of such accounts.

If Musk finally tries to back out of the deal, he could face a $1 billion separation fee. It could also effectively open the door to litigation from Twitter to enforce the terms of the merger agreement and force it 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 settlement into the original terms.

But there are still business risks for Twitter to go down that road, which could lead to the company negotiating a slightly lower price.

As Wedbush’s Ives said: “Then you’re stuck in court for 12 to 18 months. It’s a significant excess on Twitter and it just becomes a fiasco as they basically get caught up in this circus show.”

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

Challenges for Twitter anyway

Even if the deal is completed, the company could still experience a period of significant turmoil.

Musk said he plans to remove restrictions on content on the platform in the name of what he calls “freedom of speech,” by which he said he refers to all legal speech in the various markets in which Twitter operates.

Musk also said he would restore former President Donald Trump’s account on the platform and end many of the permanent bans that Twitter and other platforms have used to deal with repeat violators of their rules.

These moves 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 rife with harmful content such as disinformation and harassment. .

“Places that are just cesspools without content moderation haven’t taken off,” said Kirsten Martin, a professor of technology ethics at the University of Notre Dame.

So there could be conflict between Musk’s stated goal of growing Twitter’s business and his plans for how to handle content moderation.

If the deal is not approved, Twitter could still face renewed scrutiny of its business, its spam accounting methods and its content moderation decisions, after Musk spent weeks criticizing the company on these fronts.

For much of its life as a public company, Twitter has struggled to grow its audience and drive up its stock price.

Before Musk took a stake last month, Twitter’s stock had been trading below its closing price since its first day of trading more than eight years ago.

If the deal fails, it could only reignite investor pressure on Twitter to drive growth — and to do so at a time when the broader tech sector is struggling.

It also raises the possibility that other acquirers might try to acquire the company at a discount to what Musk offered.

In a regulatory filing this week, Twitter said its board had considered whether to contact other companies about a possible acquisition.

It chose not to because Musk’s offer had been publicly disclosed and because “other parties are unlikely to have an interest or ability to acquire Twitter … based on the regulatory, financial and enforcement risks applicable to each party discussed.”

These unknowns risk adding to the apparent chaos and uncertainty already generated by Musk’s takeover of Twitter.

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

In fact, Twitter already has it.

The company confirmed to CNN Business this week that three senior employees left the company.

Twitter also said last week that it had implemented a partial hiring freeze and parted ways with two longtime executives: consumer general manager Kayvon Beykpour and revenue product lead Bruce Falck.

Agrawal addressed on Twitter last week why a “’lame duck’ CEO would make these changes if we’re acquired anyway” and the difficult state of the tech industry the company is navigating.

“While I hope the deal is done, we need to be prepared for all scenarios and always do what’s right for Twitter,” he said.

“Regardless of future ownership of the company, we are here to enhance 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 not using the deal as an excuse to avoid making decisions important to the health of the company, nor any leader on Twitter.”