Elon Musk’s attempt to pull off the acquisition of Twitter Inc. complicating matters for Ned Segal, the social media company’s CFO, who is struggling with a slump in its stock price as well as higher costs.
On Friday, Mr. Musk said he planned to walk away from a $44 billion deal struck in April for Twitter because the company had not provided the necessary information to assess the volume of fake accounts on its platform. Twitter is committed to closing the transaction, board chairman Brett Taylor said, adding that the company will take legal action to enforce the deal. On Monday, Twitter published a letter dated July 10 that said Mr. Musk’s effort to cancel the deal was a waiver of his obligations under the merger agreement.
“The longer this legal battle goes on, the more pressure there is to cut costs, conserve cash and fund the business,” said Justin Patterson, managing director of investment advisory firm KeyBanc Capital Markets Inc.
A lawsuit between Twitter and Mr. Musk would put more pressure on the company’s share price. Since the deal was reached in late April, Twitter shares have fallen roughly 35%, compared with a roughly 10% drop in the S&P 500, as social media companies grapple with a weakening digital advertising market.
Twitter was the worst performer in the S&P 500 on Monday. The company’s shares closed at $32.65 on Monday, nearly 40% below the price of $54.20 a share that Mr. Musk agreed to pay.
In April, the company said total costs and expenses of $1.33 billion rose 35 percent in the quarter ended March 31 from the same period a year earlier. Advertising revenue rose 23% to $1.1 billion, but could take a hit if the economic environment worsens, analysts said.
Ned Segal, Chief Financial Officer of Twitter Inc.
Photo: David Paul Morris/Bloomberg News
Mr. Segal, a former Goldman Sachs Group Inc. banker who has been in charge of Twitter’s finances since 2017, has recently taken advantage of low funding costs and raised additional debt. Last week, the company said it had laid off 30 percent of its talent acquisition team after it said in May it would freeze hiring and look to cut costs. The layoffs are expected to affect fewer than 100 people and are limited to the talent acquisition team, Twitter said.
Mr. Musk’s attempt to back out of the deal is not expected to negatively affect Twitter’s capital structure, said Neil Begley, a senior vice president at Moody’s Corp., a ratings firm.
The deal was expected to potentially triple Twitter’s leverage and add hundreds of millions of dollars in interest. The company would be “better positioned” if the deal was cancelled, Mr Begley added.
Twitter’s cash and cash equivalents fell to $2.30 billion in the first quarter of the year from $4.25 billion in the same period last year. Its short-term investments fell 12.7% in the quarter to about $4 billion, down from $4.55 billion a year ago. Twitter had about $6.62 billion in total debt at the end of the first quarter, up from $5.54 billion at the end of 2021, according to data provider S&P Global Market Intelligence.
Some of the debt is held in the form of convertible bonds and senior notes, and Twitter has no upcoming maturities this year or next, according to S&P. Twitter took on about $2.43 billion in additional debt earlier this year, also in the form of convertible bonds, S&P data showed.
S&P Global Ratings on Thursday said Twitter’s BB+ rating, which is below investment grade, remains negative on credit watch and that potential litigation between the company and Mr. Musk adds uncertainty to the deal.
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Along with the hiring freeze, Twitter saw a number of departures from senior executives, including Bruce Falk, general manager of revenue, and Kayvon Beikpour, general manager of the consumer business.
The recent turmoil is likely to hit employee morale, which could reduce advertising revenue because employees may be less motivated to pursue new deals, said Mark Mahaney, senior managing director at banking advisory firm Evercore Inc.
“There’s all this uncertainty that’s supposed to depress morale. I’m sure it’s harder for them to generate revenue when we’re likely to go into an advertising recession,” he said. “I think for the CFO it must be a nightmare.”
Mr. Musk and Mr. Segal did not respond to a request for comment. Twitter declined to comment.
Email Jennifer Williams-Alvarez at jennifer.williams-alvarez@wsj.com
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