A big discount is on the cards.
- Although I think that Twitter may very well win its court case against Mr Musk, enforcing the ruling will be almost impossible which is likely to force it back to the negotiating table meaning a lower price or a much lower break-up fee.
- Ever since the beginning of this entertaining episode, I have argued that at $54.20, Twitter is grossly overvalued (see here) which is what I suspect gave Mr Musk cold feet following his ill-timed offer.
- However, the grounds upon which he has terminated the deal are highly spurious as everyone has known for years about the issue of fake accounts which was dealt with by the market at the time.
- The net result is that this is a problem but also one that is under control and the fact that there have been no wild or unexplained gyrations in Twitter’s usage and monetisation metrics indicate that this is not a real issue.
- Despite this, this is the hill that the Musk legal camp has decided to die on which I think indicates the weak and frivolous nature of its case.
- Hence, I think that Twitter will have no problem prevailing in court.
- However, it is here that Twitter’s problems really begin as it is one thing to win a lawsuit it is quite another to enforce the ruling and this is where the legal situation gets complex.
- The way this would be enforced is a remedy known as “specific performance” which is used very rarely and when there is no alternative given how coercive it is.
- Furthermore, when an entity is under a court order to perform a service or engage in the transaction, that entity is unlikely to perform the service or transaction very well leading to a poor outcome for all parties.
- This is another reason why it is used so rarely.
- The other problem is the very real possibility that Mr Musk simply says no leaving holding him in contempt as the only remedy left to the court.
- Mr Musk is not the legal entity that agreed to buy Twitter but two companies that he controls and holding companies in contempt of court is not a practical course of action to take.
- This leaves the break-up fee that the court could force him to pay but there are plenty of legal avenues by which Mr Musk could seek to have the fee drastically reduced.
- Hence, while Twitter will likely score a win in court, there is very little that it will be able to do with it meaning that its best option will be to negotiate.
- I have argued that a fair price for Twitter is somewhere around $17 – $20 per share but from an ideological perspective (which is why Mr Musk wanted to buy it) it is probably worth quite a bit more.
- Therefore, the most likely outcome will be a renegotiation that ends up somewhere around the current share price or Mr Musk walking away and paying much less than $1bn to Twitter.
- I see no reason to hold Twitter shares at all as there seems to be little upside and lots of downside from current levels.
- For those who decided to hold on at $48.45 (see here), $36 still represents a fantastic deal for shareholders which I would grab with both hands if owned any shares (which I don’t) and had failed to sell them at $48.45.
