Twitter (TWTR) shares plunge after Musk nixes deal

Twitter Inc. (NYSE: TWTR) shares plunged on Monday as a legal battle is brewing over Elon Musk’s rescinding the US$44 billion deal to buy the company.

Shares of the social media company tanked 6.6% to US$34.40 as of 9:38 am ET, which will likely erase about US$1.8 billion in market value.

Elon Musk-led Tesla Inc.’s (Nasdaq: TSLA) shares also fell about 1%. Twitter shares were trading below the US$54.20 per share offer Elon Musk made in April this year.

Musk alleges that Twitter fudged user data, and the number of spam bots on the platform far exceeds what the company disclosed.

Shares of the tech sector have been falling amid mounting interest rates.

Experts quoted by Bloomberg say that it is not surprising that Musk is trying to derail the agreement. The whole saga was volatile over the past few months, which could affect Twitter’s performance in the second and third quarters, feel analysts.

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Investors bracing for more upheavals

As Twitter is now getting ready to take Musk head-on at the legal turf, investors fear more disruptions ahead, with a US$1 billion breakup fee on the line.

According to Twitter Chairman Bret Taylor, the company will pursue a legal course to close the transaction “on the price and terms” Elon Musk agreed to.

Twitter has hired merger-law goliath Wachtell, Lipton, Rosen & Katz, planning to file the suit this week.

Twitter has denied Musk’s claims, saying bots are less than 5% of the total subscribers. Twitter executives maintained that their estimates were accurate.

Market strategists talking to Bloomberg said it would be a huge win for the Tesla chief executive to walk away by paying US$1 billion.

Investors will closely look at Twitter’s quarterly earnings later this month, on July 28. The company’s first-quarter earnings reported a revenue of US$1.2 billion but missed analysts’ estimates amid a slowdown in advertising.

Bottom line:

From the beginning, the Twitter deal was embroiled in controversies, with many volleys exchanged between Musk and Twitter executives, including its CEO Parag Agrawal. The bone of contention was the fake accounts on Twitter, which drew a lot of flak from the Tesla executive. Many saw this legal war coming from the exchanges between Musk and Twitter.