Twitter's lawsuit states that, "Musk presumably thinks that, unlike all other parties subject to Delaware contract law, he is free to change his mind, defame the company, disrupt its operations, destroy the value of the stock, and walk away." Twitter called Musk's reasons for rescinding the contract unfounded. Musk argued that Twitter breached the purchase agreement by failing to respond to requests for information about fake or spam accounts on the social network that would have allowed him to make an independent assessment.
Is the reason for the announcement a drop in revenue?
According to Twitter, the current situation in the global economy, which has also caused a slump in the stock market, could be more likely the reason for the withdrawal. It also affected the value of shares of technology companies on the stock market. To illustrate - for example, shares of Tesla, a key source of Musk's income, have written down 30 percent of their value since the deal was announced.*
Twitter's stock value is also falling
Twitter shares lost value following the negative news of Musk's withdrawal from the April deal, falling from around $50 per share to around $36, where they were before the start of Friday's trading day. In total, they have written off 28 percent of their value over that period. For comparison, the company's stock has lost as much as 46 percent of its value over the past year, according to data from Investing.com, while looking at a five-year period, it has outperformed by 125 percent.
Twitter's stock value development over the last 5 years. (Source: Investing.com)
From the information released so far, it looks like the contractual obligation speaks in Twitter's favour. According to it, it is entitled to $1 billion in case Musk does not complete the transaction. However, even that hasn't stopped the company's stock from plunging following the negative news of the withdrawal from the purchase agreement. We shall see how the situation develops further.*
Olivia Lacenova, Chief Analyst at Wonderinterest Trading Ltd.
* Past performance is no guarantee of future results
