How will TWTR’s price react to court saga?

Mark O'Donnellon 31/08/2022|
3 min read

Twitter Inc. (NYSE: TWTR) is on track to closing August on the red as billionaire Elon Musk finds new reasons to back out of his $44 billion deal to take over the social media company. 

The company closed Aug. 30 just below $40.00. Over the last 30 days, the company peaked at  $44.99, much lower than Musk’s $54.20 per-share offer. 

Amid the ongoing takeover debacle, shares of the company have taken a beating and investors  are watching for buying or selling opportunities with Twitter’s shares ahead of the Oct. 17 court  hearing that will determine whether Musk is forced to proceed with the acquisition. 

Impact of the proposal 

Tesla’s (NASDAQ: TSLA) chief executive agreed to acquire Twitter in April, with shares trading back then at a roughly 10% discount to the offer price

In May, Musk put the deal on temporary hold, raising concerns over spam accounts on the  platform that he said were not accounted for in the computation of the buyout bid.  

When the billionaire formally terminated the agreement in July, it sent Twitter’s shares further  down, with stocks tumbling to a four-month low on July 11. 

Since then, TWTR has found buying support, maybe because investors believe that Musk  cannot legally pull out of his market altering, unsolicited, an unconditional bid for twitter. Even  so, downward pressure is building on twitters share price as the court case develops. As of  writing, TWTR has retracing to the 50% level between its July low to its August high.

NYSE: TWTR 4H, with the Pivots Indicator, and monthly breaks 

On Aug. 26, Deleware judge Kathaleen McCormick ordered Twitter to provide Musk with more  data on how it calculates bot and fake accounts on its platform in the lead up to the Oct. 17  court hearing. McCormick mandated the company to produce information regarding 9,000  accounts it analyzed for authenticity as part of an audit at the end of 2021, London’s Financial  Times reported

The data could strengthen Musk’s claims and deal another blow to the social media company,  especially after its former head of security, Peiter Zatko, claimed that he raised concerns about  severe shortcomings in Twitter’s handling of users’ personal data, including running out-of-date  software. Bloomberg reported, citing Zatko, that company executives also withheld information  about breaches and lack of protections for user data. 

Only loss in sight? 

For Twitter, the deal has already incurred $33 million in expenses and the uncertainties arising  from the court drama had caused a decline in its revenue. And even if it did see the deal push  through, it will be left in a worse position than before the offer was made, Further, the entire  saga has taken a toll on employee morale and retention on the social media platform. 

Meanwhile, similar damage could be brought upon Tesla. The automotive company’s shares,  which Musk was using to support his buyout bid, have halved between early April at the onset of  the deal and in late May at the start of Musk’s attempts to pull out. Although the shares have  started showing signs of recovery, Musk and his shareholders would have significantly overpaid  for Twitter based on its current market value. 

Right now, everyone is waiting for the October court decision that will determine whether the  companies will deal with the aftermath together or separately.