Elon Musk turned Twitter into dead money: Morning Brief

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Monday, July 11, 2022

Today’s newsletter is from Brian Sozzieditor-in-chief and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

Throughout my career, I’ve accepted one thing: rich and powerful people will do whatever they please.

The reason for this is quite simple – they have the money, the connections, and the ruthless aggression to foster the reality they so desire.

It may sound cynical, but I’ve seen it time and time again. And now everyone is seeing it firsthand with the world’s richest person, Elon Musk, who walked away from his $44 billion Twitter deal on Friday night.

Musk is terminating the merger agreement with Twitter over what his team considers “material” violations of several provisions of the agreement. Some of those provisions appear to include Twitter’s recent decision to cut about a third of its recruiting team and not provide Musk with what he considers accurate data on “bots” or fake accounts.

Twitter Chairman Bret Taylor tweeted that the company would take it to court to get Musk to make the deal or make him pay the $1 billion breach fee. Taylor declined to comment to me on the ongoing series of events. On Sunday night, Bloomberg reported that Twitter had hired Watchell’s legal heavyweights Lipton to sue Musk.

A Twitter spokesperson declined to make CEO Parag Agrawal available for an interview. (A quick aside: Agrawal has been eerily quiet since news of the merger broke, and it would be good if he showed some outside leadership to rally the troops, as his company is essentially burning.)

“This is a ‘code red’ situation for Twitter and its board, as the company will now face Musk in a lengthy court battle to recover the deal and/or the $1 billion breach fee. We don’t see any other bidders emerging at this time while legal proceedings unfold in court,” Wedbush analyst Dan Ives said in a note to clients after Friday’s news.

Elon Musk arrives at the In America: An Anthology of Fashion themed Met Gala at the Metropolitan Museum of Art in New York, New York, U.S., May 2, 2022. REUTERS/Brendan Mcdermid

Ives cut his price target on Twitter to $30, and we expect other high street analysts to make similar moves this week.

To that end, here are eight reasons why Twitter stocks are likely dead money for the foreseeable future after Musk’s iron fist slammed into the social media platform:

  1. Wall Street will not trust Twitter’s exploitative measures in light of the fake accounts debate.

  2. Twitter’s advertising business will be affected for some time due to Musk’s involvement.

  3. Investors’ attention will return to Twitter’s lower operational performance compared to Meta (META), Snap (SNAP) and TikTok.

  4. The talent drain opened up on Twitter amid the Musk debacle, impacting future product development.

  5. There is a growing lack of trust in the untested new CEO Agrawal.

  6. Twitter is now locked in a costly long-term court battle with the richest person in the world, which is not a great place.

  7. No other bidder is likely to appear. For years, investors believed that Twitter would eventually be acquired. This needs to be completely taken out of the equation.

  8. Musk is likely to shed his nearly 10% stake in Twitter, which would put pressure on the stock price. The mere fact of that happening could weigh on the title.

In one fell swoop, Musk single-handedly destroyed a public company. Destroyed because he has the money, the connections, and the ruthless aggression to do it.

The truth is, Musk probably doesn’t care that he left a globally used platform in a mess. It comes with the territory with people like Musk.

Now, if this disaster is good news for anyone, it could be Tesla shareholders (TSLA).

Tesla stock has fallen nearly 30% since Musk announced his deal to buy Twitter, and Ives thinks the deal could offer relief for stocks. The looming court battle between Musk and Twitter, however, will likely leave the street wary of getting too excited about either company’s prospects in the coming months, according to Ives.

Good trading…and we wish you well to try to come back from the abyss, Twitter.

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