.png)
Will & I were wrong on the BBB Podcast almost every time. Elon and Twitter appear to be breaking up. What’s next? PIC: Britta Pedersen, Getty Images
It’s been growing common for Will & I to ask most of our business-focused guests one question to close their segments: will Elon Musk’s bid to privatize Twitter for $44 billion end up closing? To which most of our guests responded “yes, but not at that price, he’ll negotiate something lower.” We generally agreed.
Now, it appears for the time being, we were all wrong.
Elon Musk, who had originally agreed to purchase all active shares of Twitter for a whopping $44 billion, is seeking to back out of his deal, just 105 days after he agreed to join the company’s board of directors (and 100 days after he ditched it).
It’s certainly been a tumultuous few months for Musk’s attempted acquisition of Twitter. In January of this year, he began to up his stake gradually until he became the social media titan’s largest shareholder at 9% in April. When talks of acquisition started to heat up, Twitter’s proposed “poison pill” wasn’t enough for Elon to line up over $45 billion in financing for the deal. Between two debt commitment sheets from Morgan Stanley to his sale of $8.5 billion in Tesla stock, money talks…and it certainly spoke to Twitter, who accepted his offer to buy the company at $54.20 per share in late-April.
But now, Elon claims he was “misled” in particular areas of the deal; the most prevalent relates to spam accounts. Twitter claims less than 5% of their platform is composed of bots/spam accounts (which would denote them as fake), but Musk & others repeatedly mention that this number could be as much as 20%. The perceived “lack of data” is significant enough for Musk to express his desire to walk away from the deal, to which Twitter is taking him to court. The firm filed its lawsuit against Musk - attempting to force him to complete the acquisition - just a couple of weeks ago.
We’ll get some answers quicker than we might’ve thought with today’s judicial ruling. A judge in the Delaware Chancery Court ruled that the lawsuit should be moved up and expedited to October 2022, months (and possibly years) before it was originally thought to be held.
What does this mean for both parties?
Twitter: a huge win
“The longer the merger transaction remains in limbo, the larger a cloud of uncertainty is cast over the company,” ruled Kathaleen McCormick of the Delaware Chancery Court today. And, it’s certainly correct - Twitter’s stock obviously skyrocketed after rumblings of Musk acquiring them, but since Elon has expressed his comments, shares of $TWTR came crashing back to Earth, losing 25% of its value since acquisition day (April 25). If Twitter truly believes (and has evidence) its fake accounts are within range of what they’ve claimed, it’ll be divulged in court and Musk will have his hands tied. If there’s speculation, that’s a much different story. But either way, the October hearing will save them from further ambiguity and criticism - whether it’s deserved or not is up to investors and largely hinges on this trial.
Elon: hash out the details
Musk makes some damning allegations against Twitter that, if true, should solidify his right to back out. His legal team says the firm violated the deal’s terms for two specific reasons: inability to provide them with “sufficient data” about spam accounts, and by parting ways with two senior executives in charge of revenue & product management. Musk’s lawyer, Andrew Rossman, says these factors are damning enough to stop the acquisition: “We have reason to believe, based on what we’ve seen so far, that the real number (of bots/fake accounts) are significantly higher (than what Twitter has divulged), with enormous implications for the long-term value of the company,” he said this week. So, if that’s truly the case, Rossman & his associates have their work cut out for them in the next few months: find the supporting evidence and communicate a clear story, backed up with data & numbers. Obviously, this will mean Twitter has to cough up some more numbers, but will only three months be enough for Musk’s legal team to get what they need? Time will tell.
Again, as Rossman has said, it’s not necessarily in Elon’s best interest to keep this going for a while, as he still remains Twitter’s largest sole shareholder.
Comments