Deal or no deal, Elon Musk could upend Twitter's business for a long time

Nearly a month after Twitter agreed to sell itself to Elon Musk in a stunning $44 billion deal, the fate of the acquisition remains very much uncertain.

In recent days, Musk has said the deal "cannot move forward" until he sees more information about the amount of spam and fake accounts on the platform and has flippantly pushed back at careful explanations from Twitter CEO Parag Agrawal on the matter.

Twitter, meanwhile, remains unwavering that the acquisition will go through. In a statement to CNN Business on Tuesday, the company said it intends "to close the transaction and enforce the merger agreement."

Musk's back-and-forth with the company is widely viewed as him setting the stage to renegotiate the offer price, or else back out of the deal entirely. No matter what happens next, however, one thing is certain: Musk has created a big mess for Twitter, the effects of which won't be easily or quickly undone. And in the meantime, the company's employees, users and shareholders hang in the balance.

In one scenario, Twitter is bracing for an innovative but erratic billionaire owner who is expected to cut some staff, overhaul the leadership team and potentially undo years of content moderation efforts with uncertain outcomes for advertisers, users and the morale of the staffers who remain.

In another scenario, Twitter faces the prospect of a prolonged legal battle with the world's richest man if he tries to back out of the deal, not to mention the possibility of other acquirers coming out of the woodwork. The result could be unending background noise that adds to challenges for Twitter to hold on to staffers and regain momentum.

As Wedbush analyst Dan Ives put it on Friday, after the Tesla and SpaceX CEO first said he was putting the deal "temporarily on hold" over the spam account issue, the "Twitter circus show" has morphed into a "Friday the 13th horror show."

From the start, there have been doubts about the deal going through, including from Musk. Shortly after announcing his offer to buy Twitter last month, Musk said in an on-stage interview at the TED conference, "I'm not sure I'll actually be able to acquire it." Industry watchers have also questioned whether Musk will be able to finance the acquisition. The recent decline in Tesla shares, which he's partly using to back his financing of the deal, has only added to those concerns.

Twitter's stock has traded noticeably below the $54.20 per share Musk offered throughout the deal process, an indication of investor skepticism about the deal being completed or completed at that price. As of this week, Twitter stock has wiped out all the gains since Musk first disclosed taking a large stake in the company early last month.

With his latest public statements, Musk raised the possibility that Twitter has significantly undercounted the amount of spam and fake accounts on its platform in its quarterly disclosures, though he has yet to provide evidence to support that claim. In the process, some legal experts say, Musk appears to be trying to lay the groundwork to argue inaccurate information would constitute a "material adverse event," which might entitle him to back away from the deal.

But the bar for such a claim is high. Twitter has made the same boilerplate disclosure — that spam accounts make up less than 5% of its active users — for many quarters. Moreover, a recent securities filing from Twitter revealed that Musk waived due diligence before making his offer to buy Twitter. That concerns over spam may squash the deal is all the more curious considering Musk said part of his motivation to acquire Twitter in the first place was to rid it of such accounts.

Should Musk ultimately try to back out of the deal, he could be on the hook for a $1 billion breakup fee. He could also effectively open the door to litigation from Twitter to enforce the terms of the merger agreement and compel him to buy the company.

Brian Quinn, a professor at Boston College Law School, told CNN Business that Twitter is in "a very strong legal position" if it tried to go to court and force the deal on the original terms. But there are still business risks here for Twitter in going that route, which could push the company to negotiate a somewhat lower deal price.

As Wedbush's Ives put it: "Then it gets caught in the courts for 12 to 18 months. It's a significant overhang on Twitter, and it becomes just a fiasco as they're basically just caught up in this circus show."

Twitter and Musk did not respond to a request for comment.

Even if the deal is completed, the company could still be in for a period of significant turbulence.

Musk has said he plans to remove content restrictions on the platform in the name of what he calls "free speech," by which he has said he means all legal speech in the various markets in which Twitter operates. Musk has also said he would restore former President Donald Trump's account on the platform and do away with many of the permanent bans that Twitter and other platforms have used to handle repeat violators of their rules.

Such steps could move Twitter closer to some less moderated social media sites popular with conservatives that have yet to gain significant traction, in part, some say, because many users and advertisers prefer not to be on platforms rife with harmful content like misinformation and harassment.

"The places which are just cesspools of no content moderation have not taken off," said Kirsten Martin, a professor of technology ethics at the University of Notre Dame. Thus, there could be conflict between Musk's stated goal to grow Twitter's business and his plans for how to handle content moderation.

If the deal doesn't go through, Twitter could still face renewed scrutiny of its business, its spam accounting methods and its content moderation decisions, after Musk has spent weeks criticizing the company on these fronts.

For much of its life as a public company, Twitter has struggled to grow its audience and to boost its stock price. Prior to Musk taking a stake last month, Twitter's stock was trading below the closing price from its first day of trading more than eight years ago.

If the deal collapses, it may only reignite investor pressure on Twitter to bolster growth — and to do so at a time when the broader tech sector is struggling. It also raises the possibility of other acquirers attempting to scoop up the company at a discount from what Musk offered.

In a regulatory filing this week, Twitter said its board had considered whether to reach out to other companies about a potential acquisition. It opted not to because Musk's offer had been publicly disclosed and because "other parties were unlikely to have the interest in, or capability to, acquire Twitter ... based on the regulatory, financing and other execution risks applicable to each party discussed."

Those unknowns risk adding to the apparent chaos and uncertainty already generated by Musk's takeover inside Twitter.

"If I'm an employee right now, I'm probably throwing my resume around, looking around for new jobs," said Angelo Zino, senior industry analyst at CFRA research. "In a situation like this, you could potentially lose some great talent."

In fact, Twitter already has. The company confirmed to CNN Business this week that three senior employees have left the company. Twitter also said last week it had implemented a partial hiring freeze and parted ways with two longtime executives: general manager of consumer Kayvon Beykpour, and revenue product lead Bruce Falck.

Agrawal addressed on Twitter last week why a "'lame duck' CEO would make these changes if we're getting acquired anyway" and the difficult state of the tech industry that the company is navigating.

"While I expect the deal to close, we need to be prepared for all scenarios and always do what's right for Twitter," he said. "Regardless of the company's future ownership, we're here improving Twitter as a product and business for customers, partners, shareholders, and all of you. ... Our industry is in a very challenging macro environment -- right now. I won't use the deal as an excuse to avoid making important decisions for the health of the company, nor will any leader at Twitter."