Elon Musk ‘doesn’t have a leg to stand on’ in Twitter lawsuit: Analyst

Rosenblatt Securities Senior Research Analyst Barton Crockett joins Yahoo Finance Live to discuss Twitter’s lawsuit against Tesla CEO Elon Musk, the SEC questioning the deal, and the outlook for Twitter and its employees.

Video transcript

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BRIAN SOZZI: And another name on Wall Street to list of those getting bullish on Twitter shares, as the company prepares for a potentially lengthy courtroom battle with Elon Musk. Longtime tech analyst Barton Crockett of Rosenblatt Securities lifted his rating on Twitter stock to buy from neutral in a new note to clients this week, taking his price target on the stock to $52 from $33. Barton Crockett joins us now. Barton, great to see you here on this Friday morning. Take us through this call here. That's a lot of upside. Why do you think that can come about?

BARTON CROCKETT: OK, so what we're arguing is that after a careful reading of Twitter's lawsuit against Elon Musk, we flipped our view of, we were formally skeptical about Twitter. Now we're skeptical about Elon's position.

So we do think that Twitter is likely to get some success in court. They're likely to be able to use that as leverage for a settlement with Elon very close to the agreed deal price. And really, for us, the critical issue was, is Twitter being transparent when they're talking about key metrics in particular, the spam bot that Elon's honed in on?

And what we concluded after reading Twitter's filings is that Twitter has been making very reasonable efforts to fully disclose the way it calculates to explain this to Elon, that Elon's descriptions of these and his tweets have been misleading and not correct. And so that, I think, flips the side of the weight of credibility to Twitter and away from Elon.

And this is important because I think Elon's only way to get out of this deal under the way this tight deal is structured is if he can successfully assert that essentially Twitter's been fraudulent. And we were skeptical before because Twitter has a history of [INAUDIBLE] of [INAUDIBLE]. But after reading the process that they've gone through with Elon, we're comfortable that they're applying a consistent process and that they explained that to Elon, and that that checks the box for something that is not fraudulent, that's, in fact, accepted kind of practice.

So we don't think Elon has a leg to stand on. Throughout corporate America, the Delaware courts are respected as having power. And we think that they have levers to compel compliance. So we think if they rule for Twitter against Elon, that he needs to complete this deal, that that's going to be pretty definitive in bringing these guys together. So that drives the upgrade.

JULIE HYMAN: Barton, it's Julie here. You know, it's interesting that you come to that conclusion because you can argue that the Delaware court is broadly respected. You can argue the SEC in the past has been successful with actions it's brought against various people. And yet, Elon seems to exist outside of these norms, right? And so, what are you giving as the probability that even if the court says Musk has to go ahead with this deal, that he somehow does not?

BARTON CROCKETT: Very little. Very little. Look, I think that Elon needs people to work with him. He needs lawyers. He needs banks. Lawyers and banks work under Delaware law. For them to work with someone that's flouting Delaware law, that's evading Delaware law, you know, I think he loses his support network. So I think he becomes a pariah to the finance community if he does that.

I think that Tesla, as I understand it, as a Delaware corporation. You know, I do think that there are some powers in that court to basically take control of assets, put some structures in to execute what needs to happen to fulfill an order. So, you know, I think if you're taking the side that Elon can fight the law and win, I think it's-- I don't think the sale works out that way. I think you fight the law, and you don't win.

JULIE HYMAN: He fought the law, and the law won, I guess, in this case, to quote the song. So, Barton, OK, so if he does end up owning Twitter as originally planned, what does that now look like? After so much acrimony between the two parties, what does Elon Musk running Twitter look like?

BARTON CROCKETT: I think that that's a great question. I feel sorry for the employees at Twitter. I don't think that they benefit from all of this. I mean, it's disrupting enough to have someone come in and buy you in a hostile takeover. And then to have them say all these things that they wanted, that they don't like the business, essentially, and before they were saying that, they were trashing the model, trashing the work of many of the employees.

You know, one of the things that Twitter is asked for from Elon is him to sign off on retention bonuses so they can keep key people through this transition. He hasn't done that. So attrition is up at Twitter. We're heading into what could be an ad recession. And we've got some instability, to say the least, at the top.

So it's a great question. Look, he's been brilliant, right? He has it within him to run a business well. He certainly understands Twitter. So maybe if some clarity is focused on him, like a large percentage of your net worth is now in this asset, maybe he refocuses and cleans up his act and does what he's capable of doing and makes it a good story. One could hope.

JULIE HYMAN: We shall see. Thank you so much, Barton. Really interesting perspective here on this whole situation. And I'm sure we'll talk to you again about it. Rosenblatt Securities senior research analyst Barton Crockett, thank you, and have a great weekend.