Controversy around Elon Musk to continue after failure to reach Twitter deal

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Elon Musk and Twitter

The past two years have been positive for Tesla and the company’s stock, yet the rise of Elon Musk as the wealthiest person on the planet came in hand with several controversies – and that seems to be weighing in on TSLA. His greater involvement in the crypto space has been replaced on the headlines by the whole saga surrounding the acquisition of Twitter, a deal that has recently been put aside. 

Indirectly, Musk’s reputation has been impacted and that can have repercussions in the future, since Twitter already announced it plans to take legal steps after the deal failed to materialize. The TSLA stock suffered this year, with long-duration assets posting negative figures. Its founder’s actions are not helping at all, in that sense. 

Elon Musk and Twitter
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Elon Musk and Twitter

On April 14th, 2022, Elon Musk offered to buy Twitter at $54.20 per share, valuing the company at around $44 billion, based on a filing with the Securities and Exchange Commission (SEC). At that time, the offer amounted to a 38% premium above where the stock price stood and during the early stages, it seemed like the deal would end up being finalized.

However, that did not happen and the reason seems to be related to the number of bots and fake accounts currently active on Twitter. On July 12th, 2022, Twitter filed suit against Elon Musk in the Delaware Court of Chancery, right after the billionaire announced he was terminating the deal to purchase the company.

Twitter accuses Musk of the recent decline in the stock price, asking for compensation as a result of the failed transaction. This might end up being a long legal battle and if found to blame, Tesla’s founder might be charged a hefty amount. 

A new stock split

All the negative headlines regarding the Twitter deal inevitably impacted the Tesla stock. Traders have been debating intensely on social trading platforms like TradingView how this event could act as a drag on TSLA, leading to a deterioration in risk sentiment.

Tesla recently announced a new 3-1 stock split, trying to make the share more attractive for retail investors. Even if this move does not change the underlying business, it can increase liquidity and facilitate stock purchases at lower levels. Current shareholders will end up having three times more stocks, so on a psychological level, it should have a balancing effect on the price.

Tesla stock under pressure

TSLA topped in November 2021 and dropped by approximately 50% by mid-May this year. The price did manage to recover from the lows, but the recent stock split announcement failed to generate a hype similar to what happened two years ago. 

Because Tesla is trading similar to tech stocks, rising interest rates acted as a tailwind for the company. This makes accounting maneuvers such as these futile, when market participants are dumping volatile assets, looking for safety in cash or Treasury bonds. 

Recently, the TSLA stock failed to break and hold above $900, a critical resistance area, showing the lack of appetite on behalf of long-term buyers. This share is affected not just by headlines related to the company, but also by what happens with the Twitter suit. Elon Musk will have to sell stocks in order to meet obligations if things go wrong for him.

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