Shareholders in Twitter Inc have voted to approve Elon Musk’s US$44bn 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 17 October.
In a note to clients on Monday, the Wedbush analysts noted that: "Once both parties step into court it’s 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 US$1bn breakup fee and walks (low likelihood).
- Scenario #2. "Specific performance" upheld by the court; Musk needs to buy Twitter at US$54.20 in the US$44bn agreed upon deal (high likelihood).
- Scenario #3. Musk needs to settle or pay significant damages to Twitter with Street ranging from US$5bn to US$10bn 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 US$1bn termination fee.
Twitter's former head of security, Peiter Zatko, a well-known hacker called '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: "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 centrepiece 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 centre."
They 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."
The Wedbush analysts concluded: "We maintain our NEUTRAL rating and US$50 price target which is based on our view of the deal likely being done at this lowered price point."