Shareholders in Twitter Inc (NYSE:TWTR) have voted to approve Elon Musk’s $44mln bid to buy the social media company and take it private.
The vote came as Musk seeks to scrap the deal, casting doubt on Twitter’s self-reported percentage of fake accounts and alleging the company was not as forthcoming as it should have been with its explanation of the calculation.
The shareholder approval now sets the stage for the battle between Musk and Twitter in the Delaware Courts, though analysts at Wedbush think that there is "the high possibility ... that some form of negotiation likely takes place ahead" of the trial start date on October 17, 2022.
In a note to clients on Monday, the Wedbush analysts noted that: "Once both parties step into court its a high risk/high reward scenario for both parties with the major X variable now being the Zatko whistleblower claims."
They added: "Up until the Zatko development, the Street was factoring in Twitter to have a clear win in the Delaware Courts in October. There are a range of possibilities that can come from the Delaware court including settlement, breakup fee paid, deal enforced, and a myriad of other outcomes."
The analysts highlight Four Key Scenarios for Twitter/Musk:
- Scenario #1. Deal ends, Musk pays breakup $1 billion breakup fee and walks (low likelihood).
- Scenario #2. "Specific performance" uphold by the court; Musk needs to buy Twitter at $54.20 in the $44 billion agreed upon deal. (high likelihood)
- Scenario #3. Musk needs to settle or pay significant damages to Twitter with Street ranges from $5 billion to $10 billion based on court ruling/trial trajectory. (high likelihood)
- Scenario #4. Musk wins in Delaware and pays no breakup fee around fake account/bot information cited in 13D filing. (very low likelihood)
Last month, whistleblower allegations became public that provided Musk, the world's richest person, with fresh ammunition to bolster his attempt to walk away from the Twitter deal without paying a $1 billion termination fee.
Twitter's former head of security, Peiter Zatko, a well-known hacker known as 'Mudge', said in a complaint to regulators that the company falsely represented that it had a solid data security plan. Zatko is set to give testimony to the US Senate in Washington DC tomorrow.
The Wedbush analysts noted: "In a tangential but important related note, Zatko will be testifying in front of the Senate Judiciary Committee in DC tomorrow at 10 am. This will be a full Committee hearing to examine allegations of widespread security failures at Twitter."
They said: "With the Musk camp now being allowed to include the Zatko claims in its testimony for Delaware, tomorrow's hearing will be closely watched by the Street to better understand the details around security issues as well as the bot/fake account issue at the centerpiece of Musk's focus. We continue to view the Zatko situation as a Pandora's Box scenario for Twitter with for now the Senate hearing front and center."
The Wedbush analysts added: "For now Twitter's stock will continue to trade on deal odds as the long and ugly courtroom battle now begins to play out in Delaware courts."
They concluded: "We maintain our NEUTRAL rating and $50 price target which is based on our view of the deal likely being done at this lowered price point."
Twitter shares were 0.7% higher in pre-market reading on Tuesday at $41.68, still well below the Musk bid price of $54.20 per share.