Text size
Elon Musk sends a letter to Twitter that includes additional reasons to end its acquisition of the social media company.
Photo illustration by Barron’s Advisor staff; Getty Images; Dreamtime
Elon Musk sent a letter to
Twitter
this included additional reasons why
Tesla
the CEO believed he could pull off the purchase of the social media company.
Twitter
(ticker: TWTR ) shares fell 0.4% to $39.87 in premarket trading Tuesday.
Tesla
( TSLA ) shares rose 1.9%.
Musk sent an Aug. 29 letter to Twitter, according to a filing with the Securities and Exchange Commission. This follows reports last week that Twitter’s former security chief, Peter Zatko, had filed a whistleblower complaint with the SEC, alleging that the company defrauded his board and the feds on hacker vulnerabilities and anti-spam efforts. These statements were provided by Musk with fresh ammunition in the billionaire’s legal battle to get out of his a $44 billion deal to acquire Twitter.
In the letter, Musk argued that Zatko’s whistleblower complaint “demonstrates that Twitter has violated the following provisions of the Merger Agreement, thereby giving the Musk parties the right to terminate the Merger Agreement.”
Musk and his lawyers wrote in the letter that “Zatko’s complaint alleges serious misconduct at Twitter — all of which was disclosed to Twitter’s directors and senior executives, including Parag Agrawal — that is likely to have serious consequences for Twitter’s business.” “
Lawyers for Musk and Twitter have subpoenaed Zatko. Musk’s lawyers are seeking documents related to the effect of fake or spam accounts on Twitter’s business operations, among other requests, according to court filings.
“The situation with Zatko, signaling irregularities, further complicates things [the] The Twitter case,” Wedbush analyst Dan Ives wrote in a note on Tuesday. Ives called the timing of the whistleblower report “a huge potential win for Musk.”
Ives sees four potential outcomes from the legal drama between Twitter and Musk: Musk pays the $1 billion breakup fee and walks away; Musk forced by Delaware court to pay $54.20 per share to buy Twitter; a deal between Musk and Twitter on a lower price or higher break-even fee; or Musk wins in Delaware and walks without paying.
The settlement, along with a court forcing the buyout, are Ives’ two best-case scenarios.
Investors expect a deal at a lower price.
Future Fund Active ETF
(FFND) co-founder Gary Black ran a poll on Twitter last week asking his more than 215,000 followers what they expected. His options were slightly different from Ives’s, but the agreement was won unconditionally.
Black is a shareholder in Tesla. He’s probably hoping Musk doesn’t become the owner of Twitter. The Twitter situation has hung over Tesla stock for months, with investors worried about a distraction from Tesla’s CEO. Black did not immediately respond to a request for comment.
Tesla shares have fallen about 21% since Musk’s Twitter stake was announced in early April, but the market has also seen a decline. The
decreased by about 16% over the same period.
The impact on Twitter stock is easier to see. Shares have risen about 2% since Musk’s stake was announced, outperforming the Nasdaq by about 18 percentage points.
Ives, for its part, covers both stocks. He rates Twitter stock a Hold and has a $50 price target on the stock. He rates Tesla stock a Buy and has a $360 price target on the stock.
Write to Joe Welfel at joseph.woelfel@barrons.com