Elon Musk alleges Twitter is breaching merger pact by not disclosing spam info

Yahoo Finance Live anchors discuss Tesla CEO Elon Musk’s 13D filing against Twitter, a new analyst note from Citi, which states that supply chain woes will continue, as well as what to expect from Apple’s WWDC 2022.

Video Transcript

JULIE HYMAN: A lot of head fakes. So let’s talk about the three things that we are watching right now that you need to know about. As we are seeing strategists sort of synthesize all of this action we’ve been talking about, we’ve been seeing revised analyst forecasts and new notes showing that even some of the market bulls are getting more nervous or more cautious about the current state of US stocks.

There’s a new note from Morgan Stanley strategist Mike Wilson. Surprise– he’s still bearish. He says the S&P 500 is likely going to trade as low as 3,400 by mid to late August. That’s lower even than his 3,900 12-month target for the index.

And while Wilson, of course, is an established market bear, more bullish RBC Capital Markets equity analyst Lori Calvasina also today out in a note, trimming her year end forecast. Now she’s going to 4,700 from 4,860. So we see a new average of the consensus forecast there on your screen, about 4,701.

And, obviously, a lot of this comes down to the Fed and whether they’re going to be able to engineer a hard landing or not. Jan Hatzius of Goldman Sachs this morning says he thinks a soft landing is possible, even though it’s a narrow path to get there. What’s interesting to me, you guys, Calvasina saying she doesn’t think a recession is going to happen.

And I was just looking at what does 4,700 imply, well, we closed on December 31, 2021 at 4,766. So we’re not looking at a collapse, according to that forecast or according to the average forecast. What we’re looking at is sort of a lost year, right, one where you didn’t– you’re not going to see necessarily much change.

BRIAN SOZZI: No, and Julie, it’s interesting to read Lori’s note, and you have Mike Wilson. The one theme that I would argue ties them all together is this view that earnings estimates on Wall Street have not come down, not just a little– at all. And you have a lot of analysts on Wall Street simply ignoring what Microsoft said last week about FX volatility. You have them ignoring inflation pressures. You have them ignoring continued supply chain bottlenecks and leaving these estimates as if– and leaving them at levels as if things were growing, things were fine, and things were improving. And you’re not getting that sense yet.

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BRAD SMITH: Well, there is compression across the board right now, and I think we have to recognize that. And the margins for a lot of these companies, when they do have to come out with some of these revisions, updating their guidance, and more often than not, it has been to the downside recently. And with that in mind, Microsoft last week, but then additionally, even what we’ve heard from companies like Lululemon, even over the course of their extended strategy, a lot of these companies putting out extended strategies. Just also goes to note that there is some of that bearish sentiment that is certainly at play right now.

And they’re trying to reposition people’s attention, investors’ attention, towards the three-year, towards the five-year out target for them. And that’s the growth story that they want to tell. And so, all of these things considered, I think when we look at the consumer right now and what they’re navigating through, that’s where it starts to show up in the actual data.

When you look across the different job openings that are still out there and also looking at where those are starting to get filled, where they will start to get filled, that’s a larger question, too, is, if some of those jobs kind of get pulled back off the table, you know, what ultimately does that leave out there for some of the wage growth, some of the companies that we’ve continued to talk about on a daily basis, and how they’re going to navigate and still be productive throughout this era as well.

JULIE HYMAN: Yeah, good questions. And that’s the problem right now. I guess we still have more questions than we do answers. I’ve got to talk about the number two, which is an unplanned thing number two. And that’s because we have a breaking filing from Elon Musk regarding Twitter, in which, effectively, he is threatening to call off his acquisition. Why?

Well, he says in a letter and in this 13D filing to Twitter that he’s been asking for this information regarding their methodology as to how they calculate how many bots and how much spam is on Twitter. And he says the company has not been responsive. So, as a result, he says, Mr. Musk believes the company is actively resisting and thwarting his information rights and the company’s corresponding obligations under the merger agreement.

He says this is a clear material breach of Twitter’s obligations under the merger agreement. And Mr. Musk reserves all rights resulting therefrom, including his right, not to consummate the transaction and his right to terminate the merger agreement. Now, this doesn’t seem to say he is doing that, but that he could. So we kind of knew perhaps this was a possibility, right? But this is the first time in legal terms that his representation has spelled that out, you guys. The reaction in Twitter shares, as you saw, is downward on the possibility that this might not be happening.

BRIAN SOZZI: Well, I think, Julie, you see here Elon Musk continuing to play hardball with the board and with the likes of the management team over at Twitter here, as he should. I mean, this spam thing is a big problem. And I know it got disclosed to a certain degree in the company’s annual report.

But still, it’s on Twitter to come out here and define more specifically how many accounts, how many bots, or how many fake accounts are on this platform. And by and large, they have not done this. So as somebody ponying up potentially billions of dollars of his own money to buy an asset like this, good for him for pushing to get these disclosures.

BRAD SMITH: As we’re continuing to watch shares of Twitter move lower here in pre-market, it’s also in tandem with the move that we continue to see in Tesla shares, as we know that the financing of this would likely be directly involving some of his own Tesla stock. And those shares are moving higher in the pre-market by about 3.6%.

But all of these things considered, with regard to him wanting to or getting the necessary details in order for him to make what could be lower than a $44 billion acquisition at this point, now that we’re looking at this potentially getting back into Twitter’s court, what does Twitter put out there? What do they say in pushback?

BRIAN SOZZI: Well, real quickly, Julie, look, I’ve talked to a couple of people inside Twitter recently. And they still think this deal is going to get done. But I think for it to get done, ultimately, they’re going have to give up some more information.

JULIE HYMAN: You know I’m on the other side of you from this. And I think Matt Levine, columnist for Bloomberg, put it best when he said, Musk is lying when he says he’s so concerned about the bots. This is a negotiating tactic. When you say, oh, he’s playing hardball with the board, they owe him this, blah, blah, blah, I think that that is a load of– you use these euphemisms frequently– steaming pile of garbage or one of your other euphemisms you like to use, Sozz.

BRIAN SOZZI: I don’t think he’s lying at all. I don’t think he’s lying at all. I think if he’s going to spend billions of dollars for this asset, he should get disclosures.

JULIE HYMAN: I think it’s an excuse. It’s an– he should have gotten disclosures when he was doing due diligence before he made the offer to buy the company. This is a red herring now. He’s upset that the stock has fallen so much, that the market has fallen so much, and that he’s paying more than he thinks that the company is worth. That was on him. He made the offer. He made the agreement to buy the company. And he should abide by that agreement. He should have done his due diligence before he made that agreement if, in fact, this is really the reason. He knew about the bots before.

BRIAN SOZZI: Well, there’s only so much due diligence he can do. I mean, when you get a deal– when you put a deal forth like this, you are entitled to get some form of information that is not necessarily public.

JULIE HYMAN: Beforehand. Beforehand. You can do that beforehand. That’s what most acquirers do before they make the agreement to buy a company. They don’t say– you know, I mean, come on. This is more of the same. He’s just trying to get a lower price.

BRAD SMITH: And–

JULIE HYMAN: It’s a negotiating.

BRAD SMITH: And it’s not like he went about this the correct way. It’s not about– it’s not like he went out to Twitter and went through all of the filings, the necessary kind of due diligence, to your point, Julie, as well, ahead of time, and then additionally went through the necessary legal steps in order to actually present an offer.

He did the exact thing that we would have expected somebody in an activist position to do. He acquired a massive amount of stake, a 9% stake, and then went out and said, hey, I am the largest stakeholder in Twitter right now, single shareholder in Twitter. And now going forward from here, yeah, it’s a passive stake. He lied about that.

He also, later on, went and– I think at the end of the day, it’s just mind boggling to think about how much he has actually just inflated so much of the thought around what he could do to Twitter and that he could bring it back, when reality, I don’t think there is anything that can be done to Twitter to eliminate the bots, to monetize it beyond what they’ve done. Perhaps there’s more monetization that could be done, but what is he going to do to actually make that happen?

BRIAN SOZZI: It’s Elon Musk. He’s sending rockets into the world. You would have to believe that he can figure something along these lines. This guy helped co-found PayPal.

All right, well, I like these hot takes, but I am saying– I am getting in my ear we have to switch gears. Another big bank raising flags is Citigroup. The bank releasing a long new note, saying shortages of semiconductors, car parts, and other items that flow through supply chains will persist. Citi’s global chief economist of research, Nathan Sheets, writes that the Russia-Ukraine conflict has shattered any hopes of near term improvement.

Can’t say that I’m surprised. I have more on this really extensive note now on the Yahoo Finance home page. But still, Julie, I was talking to a lot of folks at the World Economic Forum now about a week and a half ago. And most notably, Intel CEO Pat Gelsinger, he was looking for supply chain improvement just for semiconductors in 2023. He pushed that out into 2024, so a major red flag.

JULIE HYMAN: Yeah, I mean, and basically, if you boil it down, what this note seems to say is, we thought things would be getting better by now, right? I mean, isn’t that kind of the bottom line here? And that the inventory issues are not necessarily getting better.

I mean, everywhere you look around the globe, you still are seeing issues from Ukraine still having problems exporting grain, for example, to that part of the food supply chain to the tech part of the supply chain that you’re talking about with semiconductors. So, as much as we talk about the Fed raising rates in order to tighten financial conditions and press on that lever of inflation, it’s not going to get better until the supply chain issues get better.

BRAD SMITH: Yeah, this happens while we also have some port situations that are extremely congested right now and still trying to work through those backlogs as well. We do have to get to Apple here, though, on the morning as well. Apple kicking off its Worldwide Developers Conference today. Software is going to be in focus as the company is expected to debut its long rumored reality OS for VR and AR headsets. We’re also expecting to get a new look at updates to the OS for existing products here.

Now, the huge thing about this developer conference, just to kind of put it in context for everybody and our viewers, especially, I mean, it’s become even more important over the last three years. It’s this kind of juxtaposition between the contentious App Store fees and that relationship with developers. And then on the other side of that, you’ve got the services revenue run rate. That has the potential to be an $80 billion business, that after reaching a $50 billion annual business just two years ago at this point.

BRIAN SOZZI: The only thing I want about– from Apple here, I appreciate they continue to hold these events as if it was 10 years ago and they’re coming out with some new whiz bang iPhone that will change all of our lives. But look, the only thing I want to know from Apple is, when are supply chains going to improve, and they can get these products to consumers a lot quicker than they have been? I don’t think you’ll hear that at this event, but still, you have to watch it nonetheless.