Twitter dives as investors prepare for legal battle over Musk debacle

Twitter dives to its lowest level in four months as investors prepare for legal battle after Musk walks away from £37bn takeover

Twitter shares tumbled to their lowest level in four months as the row over Elon Musk’s aborted £37billion takeover of the platform continued to escalate.

The social media site dropped around 10 per cent to $33.18 on Wall Street following reports it had drafted in lawyers to prepare for what is expected to be a nasty legal battle after Musk said last week he was walking away from a deal.

Twitter has hired New York-based law firm Wachtell, Lipton, Rosen & Katz to battle the founder of electric car maker Tesla and is preparing to file a lawsuit in the Delaware courts this week.

No deal: Twitter fell 10% on reports it had drafted in lawyers to prepare for what is expected to be a nasty legal battle after Elon Musk (pictured)  walked away from a £37bn takeover

Musk, the world’s richest man, said he had decided to abandon his takeover of Twitter due to what he claimed were ‘false and misleading representations’ from the social media site, particularly regarding how many of its user accounts are fake.

Wachtell is considered one of the best law firms in the world for litigating disputes when mergers and acquisitions turn sour. 

Its lawyers are no stranger to Musk’s antics, with Wachtell previously defending the billionaire against a shareholder lawsuit relating to a bailout of energy firm SolarCity, part of his corporate empire. 

Firms including auction house Sotheby’s and private equity giant KKR have also sought the services of Bill Savitt, one of the law firm’s partners.

Representatives for Musk claim that Twitter had failed to provide information on how it assessed the number of spam accounts on the platform.

The billionaire said as many as 20 per cent of Twitter’s 330million accounts were counterfeit, not the 5 per cent figure that Twitter claims. 

But Twitter’s co-chief executive Bret Taylor insisted the board was ‘committed to closing the transaction’ and ‘plans to pursue legal action to enforce the merger’.

In a note, analysts at US broker Wedbush said the situation was a ‘nightmare scenario’ for Twitter and that its management team would face an ‘Everest-like uphill climb’ to navigate the legal fight, which could last into next year. 

‘This is going to be a long and ugly court battle, and casts a dark cloud over Twitter’s head in the near term,’ Wedbush said.

But the broker added the debacle would also be a ‘black-eye moment’ for Musk, 51, and that many investors would continue to view the situation as a moment of ‘buyer’s remorse.’ 

‘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,’ said Wedbush analysts.

Under the original agreement, Musk will need to pay Twitter a $1billion break fee for terminating the deal. 

But the company may be looking to extract a higher price from the billionaire through the courts. Twitter’s stock surged in mid-April when it was revealed Musk had offered to buy the group for $54.20 per share.

But doubts about the high cost and market turmoil mean the share price has fallen by 24 per cent since the bid was announced.

Meanwhile, shares in Tesla, through which Musk derives most of his wealth from a 15.7 per cent stake, are worth 26 per cent less than before the saga began amid investor worries that owning Twitter would distract the billionaire from his duties as chief executive.

While Twitter and Tesla investors will be cursing Musk for their losses, short sellers, who make money by betting a company’s stock price will fall, are likely to be sitting on profits.

One of them is Hindenburg Research, which in May warned there was a ‘significant risk’ the price of the takeover would be reduced and that Twitter’s share price could fall by 50 per cent if the deal was scrapped.