By Senad Karaahmetovic
Shares of Twitter (NYSE:TWTR) are down nearly 7% after Elon Musk on Friday terminated the $44 billion agreement to acquire the social media company.
In the meantime, Twitter said it is committed to closing the deal, with the San Francisco-based firm hiring law firm Wachtell, Lipton, Rosen & Katz LLP as it prepares to sue Elon Musk.
According to Reuters, the lawsuit is expected to be filed with the court in Delaware as soon as this week.
For Truist analyst Youssef Squali, the ‘nightmare scenario’ is playing out. Squali expects to see a “messy and prolonged” court battle to try and force Musk to close the agreement, however, the analyst says this is “unlikely” to happen.
“This makes the investment case for TWTR hard to make at this point. We see this move as a high stakes/high risk gamble for both parties, with a number of potential outcomes including 1) resolution through a settlement whereby Musk ends up buying TWTR at a material discount to the initial offer price; or 2) Musk ends up walking away but paying a breakup fee (there is a $1B break-up fee among other considerations). We believe a scenario whereby Musk terminates the transaction and walks away unscathed is highly unlikely,” Squali told clients.
In case Twitter fails to force Musk to finalize the agreement, the analyst sees shares trading “in the high $20s.”
“This would reflect the ~30% sell-off in the online advertising/marketing peer group since the deal's announcement on the broader market downturn and weakening economic outlook.”
Wedbush analyst Daniel Ives also described the current situation between Twitter and Musk as a “nightmare scenario.”
“Let's be clear Musk does not come out of this looking like roses, it's a black eye moment for him the way this circus show was handled since April and many investors will continue to view this as a buyers remorse situation with a market dramatically changing since April and the fake account issue the scapegoat which has turned into a life of its own,” Ives wrote in a research note.
‘In a nutshell this is a "code red" situation for Twitter and its Board as now the company will go head to head against Musk in a Game of Thrones 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,” the analyst concluded.