Mr. Musk said on Friday that he planned to walk away from a $44 billion deal struck in April for Twitter because the company had not provided the information needed to assess the volume of fake accounts on its platform. Twitter is committed to closing the transaction, board chairman Bret Taylor said, adding that the company will pursue legal action to enforce the deal. Twitter on Monday published a letter dated July 10 in which it said Mr. Musk’s attempt to scrap the deal was a repudiation of his obligations under the merger agreement. “The longer this legal battle drags on, the greater the pressure to cut costs, preserve cash and fund the business,” said Justin Patterson, managing director at 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 about 35%, compared with a roughly 10% drop in the S&P 500, as social media companies struggle with a soft digital advertising market. Twitter was the worst performer in the S&P 500 Monday. The company’s shares closed at $32.65 on Monday, nearly 40% below the price of $54.20 a share Mr Musk agreed to pay. The company in April said total costs and expenses, at $1.33 billion, rose 35 percent in the quarter ended March 31 compared with the same period a year earlier. Advertising revenue rose 23 percent to $1.1 billion, but could take a hit if the economic environment worsens, analysts said.

Ned Segal, CFO 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. The company last week said it was laying off 30 percent of its talent acquisition team after saying in May it would freeze hiring and seek 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 withdraw from the deal is not expected to adversely 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 off” if the deal was scrapped, 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 a year earlier. Its short-term investments fell 12.7% during the quarter to about $4 billion, 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. A portion of the debt is held in the form of convertible bonds and notes, and Twitter has no upcoming maturities this year or next year, 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 show. S&P Global Ratings said Thursday that Twitter’s BB+ rating, which is below investment grade, remains negative and that a possible rift between the company and Mr. Musk adds uncertainty about the transaction.

Sign up for updates

WSJ |  CFO Journal

The Morning Ledger provides daily corporate finance news and insights from the CFO Journal team. Along with the hiring freeze, Twitter has seen a series of high-profile departures, including Bruce Falck, chief revenue officer, and Kayvon Beykpour, general manager of its consumer business. The recent turmoil will likely hurt employee morale, which could reduce advertising revenue because workers could be less motivated to pursue new deals, said Mark Mahaney, senior managing director at banking consultancy Evercore Inc. “There’s all this uncertainty, which must depress morale. I’m sure it’s made it harder for them to generate revenue when we’re likely to go into an advertising recession,” he said. “I think for the CFO, this has to be a nightmare.” Mr. Musk and Mr. Segal did not respond to a request for comment. Twitter declined to comment. Write to Jennifer Williams-Alvarez at [email protected] Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8