Battle in court: What to watch in Musk's war with Twitter?
Back in April, Musk launched a surprise bid to buy $Twitter (Delisted)(TWTR.US$ for $44 billion, which the social media company initially resisted before accepting.
However, in recent weeks Musk flipped and signaled his intent to walk away from this offer, arguing that Twitter was withholding information necessary for him to close the deal. The selected Twitter took the initiative this time and took Musk to court to fight back directly.
Whoever wins, there's no question that the situation has plunged Twitter and Musk into a long and costly legal battle.
"The only sure winners in this situation are the lawyers," said Joseph Grundfest, a law professor at Stanford and former commissioner at the Securities and Exchange Commission.
It should be whether Musk needs to keep his words in the end.
The previous merger agreement stated that Musk could terminate the deal by paying a $1 billion fine, but only in certain circumstances, such as losing debt financing.
The previous merger agreement stated that Musk could terminate the deal by paying a $1 billion fine, but only in certain circumstances, such as losing debt financing.
In other words, Musk's purchase also hinges on his financing for the deal remaining in place. Musk is on the hook to pay $33.5 billion himself and has lined up $13 billion in bank loans.
The key question is, will Musk's statement about his desire to get out of the deal cause financing banks to change minds? This acquisition will be challenging to complete due to 'force majeure.'
In addition, the agreement also requires Twitter to provide data that Elon Musk may require to complete the transaction.
Most legal experts say Twitter has a strong case, partly because Musk attached few strings to his agreement to buy the company, and Twitter now seems to be determined to force the deal through. Even if Twitter's data is incorrect, Musk's recent major allegations may not be enough to get him out of the deal, according to legal experts.
Even though there are precedents for forcing buyers to close deals, Donna Hitscherich, a professor at Columbia Business School, said the court might be reluctant to do so.
Twitter might come under pressure to find a swift and relatively peaceful resolution, receiving a $1 billion "break-up" fee.
Historically, many disputes could also end with a price-cut settlement. Some Legal experts said Musk's dispute over spam could be a ploy to force Twitter back to the bargaining table to secure a lower price.
Global markets have fallen since Twitter internally agreed on the deal, with tech stocks taking the most brutal hit. That makes Twitter's $44 billion price tag even more expensive.
Now a courtroom drama would undoubtedly cast a further cloud of uncertainty over the company.
Twitter closed Tuesday at $36.75 a share, well below the bid price.
In fact, Twitter's stock had lost about a third of its value since April 25, when the company's board accepted Musk's offer. Musk, meanwhile, reportedly lost more than $150 million on his Twitter stock.
"Twitter's stock could fall to the $25 to $30 range this week as the chances of a deal being salvaged grow dim", Wedbush analyst Daniel Ives wrote in an investor note last Friday.
You can blame Musk for that, but probably not Twitter. It's been a rough year for social media stocks amid a weakening online ad market.
Interestingly, however, the stock has recovered somewhat from its recent bottom of $32.52 after Twitter decided to hit back at Musk.
Some short-term traders have been seeking to speculate on the stock volatility during the takeover rumor. The options trading of Twitter has been pretty active these days.
Do you believe the billionaire will successfully walk away from the deal as his will or be forced to complete the acquisition? Investors could adjust their trading strategy based on the following three scenarios.
1. If the court finally determined to force Musk to follow the agreement and close the deal, Twitter's stock would likely rebound continuously. Investors could therefore long the stock or buy a call option.
2. If Musk won the case and Twitter isn't going to be taken over, the stock might tumble further. Investors could choose to short the stock or buy a put option.
3. Before the ultimate result comes out, the stock price will likely go up and down frequently. In this case, swing trading may be a good strategy.
>>Tap to learn: What is swing trading?
>>Tap to learn: What is swing trading?
How long will this fall on Twitter last? Which strategy do you prefer?
A: Long the stock or buy a call option
B: Short the stock or buy a put option
C: Swing trading
Please leave your opinion in the comments.
Wanna know more about options? A common tool used by investors to hedge risks, arm yourself with our options exams.
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
Read more
Comment
Sign in to post a comment
Moomoo Learn Official Account
Easy learning at moomoo Learn.
Let's trade smarter！
20KFollowers
105Following
24KVisitors
Follow
Dobi1Kedobi : B
iNkwiziTs2 : jia.. lat
kaizen_t : Given Musk's egoistical character, this is likely to result in a long, protracted legal dispute between Musk and Twitter. One may see Musk pulling different "arguments", for example failure on provision of accurate user account data etc.
Most of us are incognisant of this acquisition details/process, hence the outcome may be Unpredictable. However, if the court rules the case in Twitter's favour, Musk will have to oblige to pay any fees/damages accordingly (this is just how the legal framework is designed to work).
Personally, I will avoid investing/trading in $Twitter (Delisted) (TWTR.US)$ due to the unpredictability of the acquisition outcome as well as less-than-stellar performance of Twitter in recent years.
71826906 : good
71826906 : ggod