As the fight for Twitter Inc. continues, a path forward seems likely to hinge on what the company's shareholders are willing to accept.
Many are growing impatient with the volatility hitting the company's stock price amid a tumultuous market and contentious negotiations between Twitter and Tesla Inc. CEO Elon Musk over the company's proposed sale. Musk offered to pay $54.20 per share for Twitter in April but rescinded the offer in July. As the disputed deal heads to an Oct. 17 court date, industry observers said a settlement appears increasingly likely, and Musk may be forced to pay close to his original offer.
Delaware Chancery Court Judge Kathaleen McCormick's decisions to set the court date relatively quickly and to limit the amount of documentation that Twitter must provide ahead of the trial indicate that Twitter may be coming to court with a stronger legal position, experts said. McCormick ruled Aug. 15 that Twitter must hand over documents from the company's former head of consumer product, Kayvon Beykpour, but is not required to produce any information Musk is seeking from 21 other employees.
"[McCormick] doesn't seem to be willing to entertain his fishing expedition on the bots," University of Chicago law professor Anthony Casey said in an interview with S&P Global Market Intelligence.
Before the trial starts, shareholders will weigh in on their view of the deal at a Sept. 13 meeting and vote.
Ken Traub, an activist shareholder of Twitter stock and managing partner of Delta Value Group, believes that "sophisticated shareholders will not be satisfied with anything less than the deal price of $54.20 [per share]." But Traub acknowledged that a settlement that avoids court and carries only a 1% to 2% discount might be acceptable for the sake of "expediency."
A 1% to 2% discount translates to between $440 million and $880 million off the $44 billion deal total.
CFRA Research senior equity analyst Angelo Zino estimated that, at most, Twitter's board might accept a 5% to 10% discount on the original offer.
"Twitter's board has no reason to accept anything more than that," Zino said.
A 5% discount to the original $44 billion offer would see Musk paying $41.8 billion for Twitter, while a 10% discount works out to $39.6 billion.
Zino sees a settlement as the "path of least resistance," given that "Twitter clearly has the upper hand here."
Twitter's stock has been hard hit by uncertainty and drama surrounding Musk's offer, with shares down more than 29% for the 12 months ended Aug. 19, when the stock closed at $43.99.
"The longer [the case] drags on, the more compromised Twitter is and the more willing management might be willing to cut an inferior deal," said Lawrence Hamermesh, executive director of the Institute for Law & Economics at the University of Pennsylvania Law School.
Some shareholders are not happy with either Twitter's current or potential leadership at this point.
"We're looking for a strategy that is long-term and indicative of a cultural and societal understanding that has not yet been expressed by either the current or potential future management," said Meredith Benton, founder of Whistle Stop Capital, a consultancy that works with asset owners and advisers to increase the environmental, social and corporate governance priorities within investment portfolios.
Since the deal was reached in April, Twitter has fired several executives, including head of consumer product Beykpour. The company instituted a hiring freeze in May and laid off 30% of its talent acquisition team in June.
Pressure is growing on Musk and Twitter leaders to reach a settlement if they do not close the deal as originally agreed, said Scott Kessler, global sector lead for technology, media and telecommunications at Third Bridge.
"[Musk] acknowledged the possibility that there could be a conclusion to the situation that isn't most favorable to him," Kessler said. "I think there's an incentive for both parties to reach an understanding about how to move forward."
While the two sides may yet reconcile and salvage the deal, it would likely result in some drastic changes for the company, said Will Duffield, a speech and internet governance analyst at the Cato Institute, a libertarian think tank in Washington, D.C.
"Given the current turn in the tech market, there's very little someone could do stepping into the shoes of Twitter CEO that would warrant a $54 share price at this point and not be tremendously disruptive or discouraging to users," Duffield said.