Musk's "buyer's remorse" may end up damaging Twitter long-term

(Alliance News) - Twitter told regulators on Tuesday that Elon Musk sent a letter saying he will go through with the deal inked earlier this year, in what appears to be the final twist of the long-running Twitter buyout saga.

Shares in the social media firm rocketed 22% at the New York equities close on Tuesday on the back of the news. On Wednesday, they were trading 0.8% lower at USD51.58.

"The intention of the company is to close the transaction at USD54.20 per share," Twitter said in a tweet. This means that shares are currently trading below the price Musk promised to buy at, six months ago.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown said this suggested that "scepticism remains about whether the deal really will go ahead, with speculation swirling again that it could be just another delaying tactic."

Musk had been poised to be deposed under oath in the US state of Delaware later this week in an effort to get himself out of the deal through a lawsuit. However, conditions noted in the letter on Tuesday included that the court immediately halts all action.

Musk began to step back from the USD44 billion Twitter deal soon after it was agreed. He said in a letter in July that he was cancelling the purchase because he was misled by Twitter concerning the number of fake "bot" accounts - allegations rejected by the company.

Analysts argued that it was this rapidly approaching court battle that led Musk to finally go through with his original deal.

"We continue to believe Musk saw the writing on the wall and knew his chances of a victory in Delaware were slim to none with the best path accepting the current deal and move forward," said experts at Wedbush.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank expressed a similar sentiment: "It is said that Elon Musk's lawyers understood that the judges won't rule in favour of them, so they just wanted to cut short, and avoid the heavy trial costs."

With the buyout looking like it is finally drawing to a close, analysts mulled what this would mean for the social media firm moving forward.

Victoria Scholar, head of investment at interactive investor said: "It is likely that if the deal goes through, Musk will take Twitter private, removing it from the public markets to avoid intense scrutiny from the analyst community and the SEC."

Scholar cautioned, however, that the timeline of events in recent months has solidified Musk's reputation as "unpredictable and unreliable", and created "a lot of uncertainty for Twitter's investors and employees".

Though Russ Mould, investment director at AJ Bell, said that investors in Twitter will now likely be relieved after enduring "considerable volatility" in the share price as the takeover difficulties ran on and legal action loomed.

For Hargreaves Lansdown's Susannah Streeter, however, Musk's flip-flopping over the deal may come back to bite him.

"If the sale does eventually go through, a bout of buyer's remorse may have damaged the company Elon Musk will end up owning," she said.

"He has been like a dog with a bone in his focus on the number of fake bots on the platform. This is an important metric considered to be key for future revenue streams via paid advertising or for subscriptions on the site, and his relentless scrutiny of Twitter's figures over the last few months is likely to prompt questions from potential advertising partners."

Analysts at Wedbush offered additional concerns: "For Musk the irony is the easy part of this deal was buying Twitter, the hard part will be fixing it with monetization and subscriber engagement a Rubik's Cube problem for Twitter over the past decade."

In Twitter's most recent earnings release in July, the firm reported a heavy quarterly loss and a dip in revenue.

In the three months to June 30, Twitter recorded a USD270.0 million loss, reversing from a USD65.6 million profit in the same period a year prior.

Taking a chunk out of its profit, Twitter booked a USD343.8 million loss from operations in the period compared to a USD30.3 million gain the year before.

Revenue in the quarter slipped marginally to USD1.18 billion from USD1.19 billion. The slight drop was attributed to "advertising industry headwinds".

Twitter's next quarterly report is expected around the end of October. It will be a while before investors see how the social media firm fares under its new owner, however.

By Heather Rydings; [email protected]

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