Twitter Inc (NYSE:TWTR) shares traded higher Wednesday after a court denied Elon Musk's request to delay the trial in the social media platform's lawsuit against the Tesla Inc (NASDAQ:TSLA) CEO.
What Happened? Twitter is suing Musk over Musk's attempts to abandon a deal to acquire Twitter for $44 billion. On Wednesday, Chancellor Kathaleen McCormick denied Musk's attempt to delay the trial but ruled that he will be allowed to add claims from a Twitter whistleblower to his countersuit against Twitter.
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Why It's Important: Musk's legal team had requested the beginning of the trial be delayed from Oct. 17 to mid-November, but McCormick said a delay would create risk for Twitter that is "too great to justify."
Since Twitter accepted Musk's buyout offer in April, the market capitalization of the social media platform has fallen to around $30.6 billion, well below Musk's $44-billion offer.
Musk initially said he wanted to back out of the deal because Twitter failed to provide accurate information about the percentage of its monetizable users that are actually spam accounts. Musk's legal team is also arguing that a recent whistleblower complaint by Twitter's former head of security Peiter “Mudge” Zatko alleging egregious security failings is evidence the company breached the terms of the buyout agreement.
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Twitter and Tesla investors both have a lot riding on the trial. The best-case scenario for Twitter investors and potentially worst-case scenario for Tesla investors would be for the court to force Musk to buy Twitter, potentially placing financial strain on Musk and triggering him to sell more Tesla stock.
Musk sold about $8.4 billion shares of Tesla stock in April after the Twitter deal was announced, but tweeted that "no further TSLA sales are planned." Musk then sold another $6.9 billion shares of Tesla stock in August.
In addition to forcing Musk to honor the terms of the original Tesla buyout, the court could also agree that Twitter did not honor the terms of the deal and Musk can back out without penalty. In addition, Twitter and Musk could agree to an amended deal at a potentially lower price.
Benzinga recently conducted a poll asking if Musk should be forced to buy Twitter. More than two-thirds (67.3%) of respondents said no, he should be allowed to walk away from the Twitter buyout completely, while just 32.7% of respondents said he should honor the deal.
This survey was conducted by Benzinga in September 2022 and included the responses of a diverse population of adults 18 or older. Opting into the survey was completely voluntary, with no incentives offered to potential respondents. The study reflects results from over 500 adults.
Benzinga's Take: With Twitter shares trading more than 25% below Musk's $54.20 offer price, the market clearly does not believe at this point the court will force Musk to honor the terms of his original offer.
Traders should expect both Tesla and Twitter shares to react to news headlines from the trial once it begins in mid-October.
