Tesla Inc. Chief Executive Elon Musk and Twitter Inc. plan to move forward with a closing of their deal under the originally agreed-upon terms, less than two weeks before a judge was scheduled to hear a case on the disputed acquisition.
Musk’s lawyers sent a letter to Twitter’s management team indicating that he was proposing to move forward with the original acquisition terms late Monday, and that letter was released as a filing with the Securities and Exchange Commission Tuesday afternoon. A Twitter spokesperson later confirmed to MarketWatch that the company intended to proceed with the deal for $54.20 a share.
Twitter shares were up more than 21%, to $51.76, after an hours-long trading halt was lifted on Tuesday.
Reports of the letter to Twitter
appeared earlier Tuesday, and the filing containing the letter appeared shortly after 3 p.m. ET. Twitter shares were halted in midday trading Tuesday after Bloomberg News first indicated that Tesla’s Musk was proposing to purchase the social-media company at his original offer price, suggesting a possible end to the legal saga between the two parties.
A Wall Street Journal report noted that a Delaware judge asked the two sides to come up with a plan by the end of the day that could bring about an end of the litigation.
Musk agreed in April to buy Twitter in a deal that valued the company at roughly $44 billion, but he later said that he was terminating the deal. The Tesla
chief cited concerns about bot activity on Twitter and said he believed the company’s management team wasn’t accurate in its public disclosures about the extent of spam activity on the platform.
The two sides have been locked in a legal battle for months, and a Delaware Chancery Court judge was expected to hear from both sides in a five-day trial slated to begin Oct. 17.
“Musk could see the writing on the wall that he was going to lose the trial,” said Josh White, an assistant finance professor at Vanderbilt University, in an email to MarketWatch. “By doing this, he can save legal costs, time and ultimately losing in a very public trial.”
White noted that text messages released in conjunction with the case showed that Musk was aware of Twitter’s bot issue before going forward with his original deal offer, and he doubted that Musk would be able to show that “something really changed” after that point.
“If he offered less than $54.20, Twitter might have proceeded with the trial, and he would be deposed,” White continued. “By offering the original price, he maximizes the chance that Twitter accepts and the trial ends. I expect Twitter’s board to accept the deal and for it to close rather quickly.”
Wedbush analyst Daniel Ives agreed that the Tesla leader’s latest move marked a “clear sign that Musk recognized heading into Delaware Court that the chances of winning vs. Twitter board was highly unlikely and this $44 billion deal was going to be completed one way or another,” he wrote in a note to clients. “Being forced to do the deal after a long and ugly court battle in Delaware was not an ideal scenario and instead accepting this path and moving forward with the deal will save a massive legal headache.”
Vanderbilt’s White noted that the a deal at the original price would be a “big” win for Twitter shareholders.
“The stock price of Snap and Twitter seemed to trade around the same price level before the offer,” he told MarketWatch. “Snap is now a ~$10 stock with a $17 billion market cap. So Twitter’s shareholders win by getting $54.20 rather than having the price drop to $10-20 per share.”
Additionally, he deemed Delaware business law another winner: “This deal shows that even the richest man in the world cannot overcome well-written contracts enforced in a neutral and fair way by the Delaware courts.”