- Twitter's court battle with Elon Musk will leave neither group unscathed, experts say.
- Wedbush analyst Daniel Ives said the deal has been "a black eye for Musk" and a "horror movie for Twitter."
- We broke down the biggest winners and losers in the case that could drag on for months.
In the battle between Elon Musk and Twitter, there are lots of losers and no real winners, analysts say — except for the lawyers.
While Twitter is hoping for a swift resolution to the saga, experts told Insider the battle could drag out for months, or even a few years. In the meantime, it could hurt Musk's reputation, Twitter's business, and employees' morale.
"Overall, this has been a black eye for Musk and horror movie for Twitter — and its employees — with no winners since the soap opera began in April," Wedbush analyst Daniel Ives said in a note on Wednesday, a day after Twitter fired back against Musk in a lawsuit — a response to Musk's attempt to back out of his $44 billion deal to buy the social company.
Here's who could get hurt in the battle for Twitter's future — and who stands to benefit:
The losers
Elon Musk
Musk may be the richest person in the world, but attempting to back out of a deal isn't a good look.
"I think he's underestimating the reputational risk that could be incurred from this," John McClaine, a portfolio manager at Brandywine Global Investment Management, told Insider. "There's always a hit to you or your company's reputation when you walk away or try to walk away from a deal. Fast-forward a couple years and he's looking to acquire another business, there's going to be a lot of raised eyebrows."
Others point out that Musk's sharp-tongued tweets — ones that suggest that Twitter misled him when it comes to the number of fake profiles on the social service, for instance — could hurt him in the long run. They might also incur more scrutiny from the Securities and Exchange Commission.
Musk already was in hot water with the regulatory agency in the past, and he's already facing SEC scrutiny over when he disclosed his majority stake in Twitter.
"Elon's not doing himself a favor by the constant tweeting," Derek Horstmeyer, a finance professor at the George Mason University School of Business, told Insider. "Those will definitely be presented in court — and maybe the judge will just say, 'This guy is not negotiating in good faith.' Anything that mocks the other side is just gonna make you look bad."
Musk has tweeted memes that suggest Twitter misled him on the number of fake accounts operating on the site, for example — something he's also alleged in his statement trying to back out of the deal. Twitter has said it provided Musk with all relevant information.
"The SEC doesn't get into contract disputes between companies," said Erik Gordon, a professor at the University of Michigan's Ross Business School. But, he added, "if Musk has manipulated the price of Twitter stock to his advantage, market manipulation could be a securities violation."
For instance, some analysts have said Musk could have been posting negative comments about Twitter to drive its stock price down — it's recently traded around $36 a share, vs. the $54.20 that he agreed to pay for the company. Some have said he might now try to push Twitter into accepting a lower price.
In Twitter's case, while the company may have a strong legal argument, a protracted battle isn't in its best interest.
Twitter said in its lawsuit that compiling information for Musk's requests to count spam accounts took "weeks" and "considerable resources" that would have otherwise gone toward everyday operations. Twitter also said it's experienced "repeated disparagement" at the hands of Musk.
Since Musk agreed to buy the company, Twitter's stock has dropped about 40%. Experts told Insider that no matter the outcome of the court case, Twitter will face more lawsuits from shareholders in the coming months.
Twitter employees
And for Twitter employees, the entire saga is "devastating," Harry Kraemer, a professor of management and strategy at Northwestern University's Kellogg School of Management, told Insider.
"An organization is its people," Kraemer said. "Your people, instead of working, are spending most of their time trying to figure out, who owns the company? And what's going to happen to my job? What's going to happen to my family? How do you plan for what your new products or development is going to be over the next year when you don't know what's going happen next week? Planning kind of comes to a halt."
Twitter has paused hiring and initiated layoffs since Musk agreed to buy the company. In the lawsuit, the company attributes its actions to pressure from Musk to cut costs.
Twitter employees recently told Wired that Musk's takeover and resultant termination of the purchase agreement have wreaked havoc on the company. Insider's Kali Hays previously reported that several Twitter employees were considering jumping ship after Musk agreed to buy the social-media company.
The winners
Lawyers
While it's in Twitter's best interest to find a solution quickly, Kraemer said this battle could "easily" go on for at least a year. Gordon told Insider that if the judge does not rule in his favor, Musk could attempt to appeal the case and drag it on for as long as three years.
"The big, big winners in this one are gonna be the law firms," Kraemer said. "These guys are gonna make a fortune."
It is unknown how much attorneys for Twitter and Musk are charging. M&A lawyers charged more than any other practice area in 2021, according to data collected by LexisNexis CounselLink. The average partner rate in 2021 was $878 per hour, according to the report.