Twitter faces ‘worst-case scenario’ as Elon Musk ends purchase

Elon Musk’s attempt to end its acquisition of Twitter will likely force the social network into a protracted legal battle and send its stock price plummeting – causing a new level of chaos for the company, after months of public disputes which have damaged its reputation and the morale of its employees.

In short? “It was the worst-case scenario for Twitter, and now it’s happened,” said Dan Ives, managing director and senior equity research analyst covering the technology sector at Wedbush Securities.

Ives warned that Musk’s severance offer could make the company look like “damaged goods” to other potential investors or acquirers. Shares of Twitter were down nearly 6% after hours trading on Friday. Wedbush Securities predicts the stock could drop to between $25 and $30 when the market reopens on Monday, down more than 30% from its Friday afternoon close before Musk’s filing.

In a Friday night press release, Twitter’s board threatened to ‘pursue legal action’ to enforce the terms of the $44 billion deal Musk struck in April to buy the social network. and make it private. He is obligated to proceed with the purchase unless there is a major change in the business, which legal experts say is difficult to prove.

Twitter’s board has said it’s confident the company will prevail in court, but analysts warn – and employees fear – that Musk’s letter sets the stage for a period eventful, which could lead to new financial risks for the company and its employees.

Elon Musk asks to withdraw from the agreement on Twitter

The billionaire has been threatening to walk away from the deal for weeks, but Friday’s filing opens a new front in the dramatic takeover of the social network, which wields outsized influence over news coverage and politics. Musk’s lawyers have repeatedly accused Twitter of failing to provide data to help his team confirm the number of bots or spam accounts on the social network, setting the stage for a legal battle. Meanwhile, the company says it has complied with all the terms of its agreement and has handed over its “firehose”, a massive stream of data comprising more than 500 million tweets posted every day. Legal experts say Musk’s case does not meet a threshold for him to walk away from the deal.

Even if Twitter wins to recover the deal or recoup a billion-dollar breach fee, a court battle invites new challenges. Twitter could be forced to release key business metrics, prompting Wall Street to question the overall health of the company, which posted its first profit in 2018 amid major financial retooling.

Columbia Business School professor Donna Hitscherich said Musk’s case will naturally raise questions about why he lost interest.

“Is he a material guy who just changed his mind? ” she says. “Or is there really something in what he said that might be issues with the fundamental nature of the business? »

After weeks of threats, employees largely braced for Musk to officially attempt to walk. “That’s been the meaning of the trip for a while,” said one employee, who spoke on condition of anonymity to candidly discuss the situation at the company. “There was a general lack of belief that the deal would go through as it was signed. »

But his arrival has only infuriated many workers, who say negotiations with Musk have drawn intense Twitter scrutiny. Any drop in shares would impact employee pay, adding to the dismay of workers who have largely bristled at the prospect of the world’s richest man taking over their company. Since Musk announced his takeover, Twitter has instituted a hiring freeze and replaced key executives.

Twitter generally has a culture of transparency and open communication, the employee said, but due to sensitivities around the deal, more information was blocked. These tensions could escalate if the case goes to court.

This employee said his reaction to the twists and turns could be most succinctly summed up with a clown emoji.

Another employee, who previously supported the offer, described the situation as “totally depressing”.

“Musk is destroying Twitter,” said the person, who spoke on condition of anonymity for the same reasons. “The best outcome for shareholders will be to close the deal at $54.20, even with a hostile owner. »

Audio: Musk answers staff questions at Twitter town hall

Musk began complaining about the robot problem shortly after agreeing to buy and take the company private this spring. In a May tweet, he said the deal was “pending” and insisted the purchase could not “move forward” until Twitter provided further proof of its spam detection methods.

Musk has pledged to use more than $33 billion of his own wealth, much of which comes from his Tesla ownership, to complete the deal. But as the stock market was rocked by a global selloff in tech stocks, the value of Tesla shares plummeted following the deal. Twitter’s stock has fallen 30% since news of its acquisition by Musk, when it traded at $52.

Conversely, Twitter plans to comply with Musk’s data requests

Anticipating further scrutiny of the bots’ role in the deal, Twitter gave reporters a background briefing on Thursday morning. The core of the presentation focused on how Twitter calculates its estimate that unwanted bots make up less than 5% of what it calls average daily monetizable users, those the company feels comfortable charging to advertisers to reach.

Twitter does not ban all bots, which include targeted automated accounts, such as those posting otter photos by the time or temperature at a specific location. In place, it looks for indicators that include mass creation accounts or human-to-human coordination to artificially amplify a tweet, set of tweets, or topic.

The company pointed out that the fire hose was not enough to understand the status of bots on the platform. Only Twitter can see all private data, including phone numbers or email addresses used to register accounts, which would help corroborate whether an account is fake. Other critical information includes the IP address and software configurations of the device using each account, which can identify a single machine behind multiple people.

Such statements appeared to be aimed at countering Musk’s statements. Of the many tweets he received, a large percentage seemed automated or coordinated. Indeed, Musk’s termination notice on Friday evening claimed that Twitter had not provided him with enough data on how it samples the user base.

Musk says he’ll ban Twitter spambots, but he’s been a beneficiary

Twitter experts have acknowledged that an individual user might feel that more than 5% of their feed is spam. This is partly because the company measures and discloses problematic accounts, not their activity or impressions. So a small number of accounts can have a large view footprint, especially among spam-heavy topics like cryptography. Many others have questioned Twitter’s estimate in the past, including many academics.

Politicians and advocacy groups are watching the disputes between Musk and the company closely, as they recognize the outcome of the deal could have broad implications for the future of elections and political discourse.

Musk said he would reverse the company’s ban on former President Donald Trump, which Twitter instituted shortly after the Jan. 6 attack on the U.S. Capitol, citing the “risk of incitement to violence “. Its plans have been celebrated by conservatives, who accuse the company of censoring political speech, and challenged by liberals, who say its self-proclaimed absolutist stance on free speech could allow harassment and misinformation to run rampant on the platform.

Why Elon Musk is so polarizing

A left-leaning watchdog group says Musk’s filing highlights why the deal has been rocky from the start. “As the fallout from Musk’s latest decision still unfolds, one thing is clear: This chaotic crusade is nothing less than a five-alarm fire drill,” the co-founder and executive director said. of Accountable Tech, Nicole Gill, in a statement. “Our information ecosystem, our security and our democracy cannot remain at the mercy of irresponsible billionaires, be it Elon Musk or anyone else. »

Meanwhile, conservatives said the outburst supports their growing push to regulate social media content moderation at the state and national level. “The richest man in the world couldn’t even pull that off,” Kara Frederick, director of the conservative Heritage Foundation’s Tech Policy Center, said in an interview with Fox News Friday night. “It is time to start talking about political solutions. »

One of the Twitter employees said there had been discussions within the company about conservative concerns about the platform, which employees are working to address regardless of the outcome of the sale.

Yet public debacle is unlikely to take hold.

“It was a political storm that Musk got himself into and now there’s going to be a lot more twists and turns,” Ives said. “You can’t put the genie back in the bottle. »

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