Twitter Inc (NYSE:TWTR) retaliated against Elon Musk on Monday, accusing the world’s richest person of “knowingly” breaking an agreement to purchase the social media company, days after the Tesla (NASDAQ:TSLA) Inc CEO attempted to back out of the $42 billion transaction.
In a letter delivered to Musk on Sunday and lodged with authorities on Monday, Twitter stated that it had not violated its responsibilities under the merger agreement, contrary to Musk’s claims on Friday.
The letter stated, “Twitter requires that Mr. Musk and the other Musk Parties comply with their duties under the Agreement, including their commitments to utilize their best endeavors to finalize and effectuate the transactions envisaged by the Agreement.”
The firm intended to sue Musk to compel him to finish the agreement, a threat he laughed off on Monday when he sent a series of tweets making light of Twitter’s intention to enforce the agreement in court. Twitter plans to launch a lawsuit in Delaware early this week, according to Reuters sources with knowledge of the case.
Twitter stated in the letter that the merger agreement remained in effect and that actions will be taken to finalize the transaction.
Twitter’s stock closed the day down 11.3% at $32.65, a 40% discount to Musk’s proposal of $54.20 and the largest daily percentage decrease in over 14 months. During prolonged trading, they gained less than 1 percent.
Tesla’s stock price decreased by over 7 percent at the market closing.
Traders who trade short According to S3 Partners, Twitter’s falling stock generated $148 million in mark-to-market profits on Monday, while short bets on Tesla generated $1.3 billion in mark-to-market profits.
Mark Zgutowicz, an analyst at Benchmark, stated, “Twitter’s board must consider the potential impact to its employee and shareholder base of any new internal data released in litigation.”
Francis Pileggi, a corporate attorney with Lewis Brisbois in Delaware, stated that Musk might place so-called “bots” at the forefront of future litigation if he fights against Twitter’s case by alleging that the firm exaggerated the number of phony accounts.
“I would be amazed if he were unable to obtain such information,” Pileggi stated.
Pileggi stated that if the number of fraudulent accounts is far higher than the 5 percent projected by Twitter, talks for a price reduction for the social media network might ensue.
According to legal experts, the 16-year-old social network business has a solid legal case against Musk, but it may choose for renegotiation or a settlement rather than a lengthy court battle.
Brent Thill, an analyst at Jefferies, stated in a note, “We believe Elon Musk’s plans to terminate the merger are based more on the current market sell-off than… Twitter’s ‘failure’ to comply with his conditions.”
In the absence of a transaction, it would not surprise us to see the share price find support near $23.5.