In a legal dispute with Elon Musk over the Tesla CEO’s decision to cancel his $44 billion takeover of the social media behemoth, Hindenburg Research is siding with Twitter.
The short-selling company tweeted on July 13 that it had “accumulated a sizeable long position in shares of Twitter.” A serious danger to Musk’s enterprise exists as a result of Twitter’s complaint.
Asserting that Twitter is “in direct violation of multiple provisions” of the agreement and “appears to make misleading and false representations” when it accepted Musk’s acquisition offer on April 25, Musk’s attorneys announced in a letter dated July 8 that he would be terminating the agreement. Musk disputes Twitter’s own estimations that less than 5% of its users are made up of spam and fraudulent accounts.
On July 10, Twitter reacted to the letter and referred to Musk and his group’s “purported termination” of an agreement as “invalid and unjust” as well as a “repudiation of their responsibilities under the agreement.”
The corporation sued Musk in the Delaware Chancery division two days later in an effort to compel him to carry out the agreement. Because the agreement Musk made no longer serves his personal interests, Twitter claims that Musk is refusing to “respect his duties to Twitter and its investors.”
Musk “appears to believe that he – unlike every other party subject to Delaware contract law – is open to changing his mind, trash the company, disrupt its own operations, destroy stockholder value, and walk away,” the lawsuit claims. Musk “mounted a public spectacle to put Twitter in play, as well as having proposed and afterward signed a seller-friendly merger agreement.”
Hindenburg stated inside a research note from May that Musk’s promise to renegotiate the price of the Twitter transaction might provide him power. Musk, according to the company’s creator Nathan Anderson, has “squandered most of his leverage, mostly through ill-advised, obsessive tweets,” according to FOX Business on Monday.
Given that it was an obvious and public justification for Musk entering the arrangement in the first place, he added, “Twitter’s bot issue is possibly the worst excuse Musk could have selected for ending the transaction.”
The company predicts that Musk would either purchase Twitter at his first $54.20 per share offer, compensate Twitter for losses in excess of the $1 billion breakup fee, or reach a settlement.
According to Anderson, “In all of the aforementioned scenarios, we anticipate Twitter trading much higher than current levels.” We estimate Twitter’s fair value to be in the mid-20s if it loses everything.
Anderson claims that, despite the focus on the transaction, the market “seems to be disregarding or underpricing the dangers to Musk.”
He said that the market was misled into believing that Twitter had little chance of succeeding and that Musk only had the $1 billion break fee on the line. We anticipate that the procedure will go quite fast and that Twitter has a strong chance of succeeding outside of the $1 billion break cost.