Elon Musk’s bid to terminate the acquisition of Twitter Inc. it’s complicating things for Ned Segal, the head of finance at the social media company, which is battling the fall in the price of its shares and higher costs.
Mr. Musk said Friday that he planned to abandon a $ 44 billion deal signed in April by Twitter because the company had not provided the information needed to assess the volume of fake accounts on its platform. Twitter is committed to closing the transaction, board chairman Bret Taylor said, adding that the company will initiate legal action to enforce the deal. Twitter on Monday posted a letter dated July 10 stating that Mr. Musk to rule out the deal is a repudiation of his obligations under the merger deal.
“The longer this legal battle takes place, the more pressure to cut costs, preserve cash, and finance the business,” said Justin Patterson, CEO of investment advisory services firm KeyBanc Capital Markets Inc.
A lawsuit between Twitter and Mr. Musk would put more pressure on the company’s stock price. Since the deal was reached in late April, Twitter shares have fallen about 35%, compared to a drop of about 10% in the S&P 500, as social media companies s ‘face a digital advertising market that softened.
Twitter was the worst performance of the S&P 500 on Monday. The company’s shares closed Monday at $ 32.65, nearly 40% below the $ 54.20 per share price that Mr. Musk agreed to pay.
The company said in April that total costs and expenses, at $ 1.33 billion, were up 35% during the quarter ended March 31 from the same period last year. Advertising revenue rose 23% to $ 1.1 billion, but could suffer once and for all if the economic environment deteriorates, analysts said.
Ned Segal, Chief Financial Officer of Twitter Inc.
Photo: David Paul Morris / Bloomberg News
Mr. Segal, a former banker of Goldman Sachs Group Inc. who has been in charge of Twitter’s finances since 2017, recently took advantage of low financing costs and increased additional debt. The company said last week it had laid off 30% of its talent acquisition team after saying in May it would pause hiring and seek to cut costs. The layoffs are expected to affect less than 100 people and are limited to the talent acquisition team, Twitter said.
It is not expected that Mr. Musk’s move away from the deal would negatively affect Twitter’s capital structure, said Neil Begley, senior vice president of Moody’s Corp., a rating firm.
The deal was expected to potentially triple Twitter leverage and add hundreds of millions of dollars in interest. The company would be “better positioned” if the deal is canceled, Begley added.
Twitter’s cash and cash equivalents fell to $ 2.3 billion during the first quarter of the year, from $ 4.25 billion in the same period last year. Its short-term investments fell 12.7% during the quarter, to about $ 4 billion, from $ 4.55 billion a year ago. Twitter had about $ 6.62 billion in total debt at the end of the first quarter, more than the $ 5.54 billion at the end of 2021, according to data provider S&P Global Market Intelligence.
Part of the debt remains in the form of convertible bonds and senior notes, and Twitter has no maturities near this year or next, according to S&P. Twitter assumed about $ 2.43 billion in additional debt earlier this year, also in the form of convertible bonds, S&P data show.
S&P Global Ratings said on Thursday that Twitter’s BB + rating, which is below investment grade, remains negative and that possible litigation between the company and Mr. Musk adds uncertainty around the transaction.
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Along with the hiring freeze, Twitter has seen several exits from top executives, including Bruce Falck, general manager of revenue, and Kayvon Beykpour, general manager of its consumer business.
The recent upset will likely affect employee morale, which could reduce advertising revenue because employees may be less motivated to seek new deals, said Mark Mahaney, senior general manager of banking advisory firm Evercore Inc.
“There’s all this uncertainty, which has to be depressing morale. I’m sure it’s made it harder for them to generate revenue, when we’re likely to go into an advertising recession,” he said. “I think for the CFO, that must be a nightmare.”
Mr. Musk and Mr. Segal did not respond to a request for comment. Twitter declined to comment.
Write to Jennifer Williams-Alvarez at jennifer.williams-alvarez@wsj.com
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