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Monday, July 11, 2022
Today's newsletter is by Brian Sozzi, an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
As my career has soldiered on, I have come to terms with one thing: rich, powerful people are going to do whatever they damn well please.
The reason for that is pretty simple — they have the money, connections, and the ruthless aggression to foster whatever reality they so desire.
This might sound cynical, but I have seen it time and time again. And now, everyone is seeing it firsthand with the world's richest person, Elon Musk, backing out of his $44 billion deal for Twitter late on Friday.
Musk is terminating the merger agreement with Twitter because of what his team believes have been "material" breaches of multiple provisions in the agreement. Some of those provisions appear to include Twitter's recent decision to can about a third of its recruiting team and not providing Musk with what he views as accurate data on "bots," or fake accounts.
Twitter chairman Bret Taylor tweeted the company will take this to the courts to get Musk to close the deal or have him pony up the $1 billion breakup fee. Taylor declined to comment to me on the unfolding series of events. On Sunday evening, Bloomberg reported that Twitter has hired the legal heavyweights over at Watchell, Lipton to sue Musk.
The Twitter Board is committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plans to pursue legal action to enforce the merger agreement. We are confident we will prevail in the Delaware Court of Chancery.
— Bret Taylor (@btaylor) July 8, 2022
A spokesperson for Twitter declined to make CEO Parag Agrawal available for an interview. (A quick aside: Agrawal has been bizarrely quiet since the merger news hit and it would be good for him to show some outward leadership to rally the troops as his company is essentially burning down to the ground.)
"This is a 'code red' situation for Twitter and its Board as now the company will battle Musk in an elongated court battle to recoup the deal and/or the breakup fee of $1 billion at a minimum. We see no other bidders emerging at this time while legal proceedings play out in the courts," Wedbush analyst Dan Ives said in a note to clients following Friday's news.
Ives cut his price target on Twitter to $30, and we expect other analysts on the Street to make similar moves this week.
To that end, here are eight reasons why Twitter's stock is probably dead money for the foreseeable future following Musk's iron fist slamming down on the social media platform:
Wall Street won't trust Twitter's operating metrics in light of the fake account debate.
Twitter's advertising business will be hurt for a while due to Musk's involvement.
Investor focus will return to Twitter's subpar operating performance versus Meta (META), Snap (SNAP), and TikTok.
The talent drain has opened at Twitter amidst the Musk debacle, impacting future product development.
There is a growing lack of confidence in new, unproven CEO Agrawal.
Twitter is now locked in a costly long-term court battle with the world's richest person, which is not a great place to be.
No other bidders are likely to appear. For years, there was a view from investors that Twitter would eventually be acquired. That has to be completely removed from the equation.
Musk is likely to dump his nearly 10% stake in Twitter, which would pressure the stock price. Just the potential for this happening could weigh on the stock.
In one fell swoop, Musk has singlehandley destroyed a public company. Destroyed it because he has the money, connections, and the ruthless aggression to do it.
The blunt truth is Musk probably doesn't give a damn that he has left a platform used around the world in utter shambles. It comes with the territory with people like Musk.
Now, if this disaster is good news for anyone, it could be Tesla (TSLA) shareholders.
Tesla stock has lost nearly 30% since Musk announced his deal to buy Twitter, and Ives thinks this deal going away could offer a relief rally for shares. The looming court battle between Musk and Twitter, however, will likely leave the Street wary about getting too fired up for either company's prospects in the months ahead, in Ives' view.
Happy Trading...and we wish you well trying to come back from the abyss, Twitter.
What to Watch Today
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