With Twitter ( NYSE: TWTR ) shares up by 12% since the company sued Elon Musk on Tuesday, there is a growing sense on Wall Street that the social-media leader might just have the upper hand in its effort to get Musk to adhere to his $44B acquisition.
According to Wedbush Securities managing Twitter's ( TWTR ) gains over the last week are the result of the company's suit as being "extremely compelling" in the minds of investors, and the company has to a degree turned the tables on Musk.
On July 8, Musk said he was terminating his deal to acquire Twitter ( TWTR ) for $54.20 a share due to what he said were inconsistencies with how the company determines how many of its accounts are either spam, fake or bots . Twitter ( TWTR ) then sued Musk in Delaware Chancery Court seeking to hold him to his acquisition, and an initial hearing on expediting the trial is set for July 19.
Ives said that the situation between Twitter ( TWTR ) and Musk is now "a game of odds [and] legal analysis" as Wall Street factors the matter into Twitter's ( TWTR ) stock price. In Ives' view, there are four possible scenarios for how the Twitter-Musk fight could pan out.
One is that Twitter ( TWTR ) and Musk decide to call off the deal, and Musk pays a $1B breakup fee as agreed to by the acquisition's original terms. Ives said that Wall Street views this possibility has having a low likelihood of happening.
Ives said that even less likely is the that the chance that Musk wins the case in Delaware court and is allowed to walk away without paying any breakup fee.
Ives said the more likely outcomes involve Musk being held accountable to Twitter ( TWTR ) to at least some degree. In one case, the court could say Musk doesn't have to acquire Twitter ( TWTR ), but levies a fine of $5B to $10B upon him for damaging the company. And in the fourth scenario, Ives said the court could uphold the "specific performance" clause of the deal and Musk must buy Twitter ( TWTR ) for the original $54.20-a-share price.
"The Street and legal experts across the board view Twitter ( TWTR ) as having a strong iron fist upper hand," heading into the court fight, Ives said. "Ultimately, Twitter's board is holding Musk's feet to the fire to finish the deal at the agreed upon price."
A Securities and Exchange Commission filing on Tuesday showed that the SEC had questioned Musk, and his attorneys, in June over statements about the deal that Musk had tweeted not long after the deal was announced .
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Twitter-Musk battle could be headed for one of four possible outcomes