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Elon Musk Deserves to Lose His Fight With Twitter

July 22, 2022

By Llam Denning

On Tuesday, US judge Kathaleen St J McCormick is scheduled to hear lawyers representing Twitter argue for a speedy trial in its lawsuit against Elon Musk, while those on Musk’s side seek to punt the case to next year. Let’s hope McCormick wants to get it over with.

Twitter’s complaint is worth reading in full. It tears apart Musk’s various reasons for backing out of buying the company in the way a lion might mangle an antelope with three legs and a weight problem. Musk’s counterarguments are less than compelling, and he created an ample digital paper trail, mostly on the very platform he sought to buy. This is no case of he said/she said but rather he tweeted/and then he tweeted some more.

Musk’s central contention that he was blindsided by the problem of bots on Twitter? There’s a tweet for that.

Twitter has it right: their client signed a merger agreement that had nothing to do with bots

Twitter’s lawyers lay out the increasingly expansive demands from Musk’s advisers as the deal progressed, alleging quite convincingly that this was a ruse to give Musk an excuse to withdraw. The request for a working copy of the valuation model of Twitter’s own bankers stands out as a badge of deep unseriousness. The response to Twitter’s complaint, filed on Friday, echoes this approach: Musk’s lawyers request a more detailed — and sloooow — examination of the bots issue, which is what they would like the case to be about. But Twitter has it right: their client signed a merger agreement that had nothing to do with bots.

Twitter alleges more evidence of foot-dragging. On page 46 of its complaint, its lawyers detail concerns that Musk was taking his time securing the necessary loans. On 23 June, Musk informed the company’s management that he had fired from his deal team Bob Swan, former chief executive of Intel, “as we are not on the same wavelength”. One can only assume that was an accurate observation.

Buyer’s remorse

Nonetheless, coming two months after the binding offer was signed and with Musk already signalling buyer’s remorse (on you-know-where), Twitter was rightly alarmed at the departure of a senior adviser. This was compounded when Musk also demanded cash-flow projections for his lenders that he should have sought much earlier — suggesting, at best, a shambolic approach to a US$44-billion deal and, at worst, a lack of interest in completing the deal. Musk added the helpful insight that debt issuers “are much more conservative than equity issuers”. One can only imagine the temptation for Twitter’s advisers to text back: “Thanks for the tip, bud.”

Musk’s lawyers also complained that Twitter fired certain staff without his consent. And yet, according to Twitter, he not only signed away that right but also texted the company’s chairman on 28 April that his “biggest concern is head count and expense growth”. Not a tweet that time but, assuming the text is verified, still a product of those remarkably incontinent thumbs.

The whole ordeal has been straightforward to the point of banality. A billionaire signed on to buy a company and then regretted it when the market moved against him. Or, as Twitter’s lawyers framed it:

“Having mounted a public spectacle to put Twitter in play, and having proposed and then signed a seller-friendly merger agreement, Musk apparently believes that he — unlike every other party subject to Delaware contract law — is free to change his mind, trash the company, disrupt its operations, destroy stockholder value and walk away.

Related aspects of this case, ranging from whether it’s a good idea for Musk to own Twitter to whether there’s a financial settlement to be had, are interesting but shouldn’t distract from the fundamental question. Namely, does Musk get to live by his own set of rules?

Musk’s most committed fans admire his ability to seemingly shrug off conventions and regulators. Under this way of thinking, Musk’s business achievements mean that society should tolerate his foibles. But this is nonsense. Yes, he is fostering a revolution in electric vehicles. But he has been richly rewarded for that. Indeed, given that Tesla has shed almost $460-billion of value over the past six months yet still trades at 66 times forward earnings, one could say he has been rewarded well in advance of his achievement. No other perks are required.

Most importantly, for most of its 12 years and counting as a public company, Tesla survived on regular doses of new cash from investors. Musk’s success, like that of many entrepreneurs in the US, has relied to a huge degree on his access to the deepest pool of equity capital on the planet.

What explains the remarkable strength of the US public markets? One critical element is a set of laws and guidelines designed to ensure, among other things, that when someone signs a binding agreement they complete it in good faith. To assume that one can reap the benefits of a financial system built painstakingly by others over decades but then flout the rules that make it work when they become inconvenient requires a special audacity.

We are at a moment when the ability of US institutions to uphold our most fundamental laws and norms is being questioned. Musk’s newfound apparent enemy, former US President Donald Trump, continues to push his corrosive lie about the 2020 election and, thus far, seems to pay no price. By comparison, the buyout of Twitter is small beer. But there are parallels in the cultish worship of these two men and their obvious disdain for the rules, due in no small part to their liberal use of social media. Musk is entitled to a fair hearing, and his lawyers may yet reveal some worthwhile arguments. But the ones deployed to date don’t bode well. Rather, they offer ample reason for the judge to expedite the trial and demonstrate that the laws that benefit us all, very much including Musk himself, aren’t to be toyed with.

Liam Denning. is an Energy Columnist, Bloomberg Opinion. Bloomberg LPUniversity of Cambridge

Kelechi Deca

Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry

More Worries for Elon Musk’s Twitter Deal

June 13, 2022

The Controversial acquisition of social media giant Twitter by Elon Musk is yet to be laid to rest as efforts to arrange new financing that will limit his cash contribution to his US$44-billion acquisition of Twitter have been put on hold because of the uncertainty surrounding the deal.

Musk has been threatening to walk away from the deal unless the social media company provides him with data to back up its estimate that false or spam accounts comprise less than 5% of its user base. This culminated in a letter from Musk’s lawyers to Twitter warning he may walk away unless more information is forthcoming.

Musk is on the hook to pay $33.5-billion in cash to fund the deal after arranging debt financing to cover the rest. His liquidity is limited given that his wealth, which is pegged by Forbes at $218-billion, is largely tied to the shares of Tesla, the electric car maker he leads.

These conversations are now on hold until there is clarity about the future of the acquisition

Musk has been in discussions to arrange $2-billion to $3-billion in preferred equity financing from a group of private equity firms led by Apollo Global Management that would further reduce his cash contribution, according to the sources. These conversations are now on hold until there is clarity about the future of the acquisition, one of the sources said.

The pause in financing activities offers the first clear sign that Musk’s threats are interfering with steps that would help complete the deal. Twitter has insisted thus far that Musk has been performing his obligation under their contract, including helping to secure regulatory approval for the deal.

Musk sold $8.5-billion worth of Tesla shares in April after he signed his deal to buy Twitter, and it is not clear how much cash he has available to meet his obligation. He has raised $7.1-billion from a group of equity co-investors to reduce his contribution. Musk also sought to reduce this exposure further by arranging a risky $12.5-billion margin loan tied to the shares of Tesla, but then scrapped it last month.

Preferred equity would pay a fixed dividend from Twitter, in the same way that a bond or a loan pays regular interest but would appreciate in line with the equity value of the company.

The deal uncertainty has also weighed on the plans of banks to get $13-billion of debt they have committed to the acquisition off their books through syndication. While still preparing to syndicate the debt, the banks plan to wait until there is clarity on the deal to launch the process, the sources said.

The banks do not believe credit investors will buy into the debt as long as the uncertainty lingers, the sources said. The banks have also found Musk’s disparaging public comments about the company unhelpful, and were hoping he would be helping them by now with investor presentations to syndicate the deal, the sources added.

To be sure, the halt of these activities does not affect the commitments made by Musk and the banks to fund the deal. Twitter can take them to court to force them to comply with their financing obligations under the deal contract if they come short.

The syndication of the debt could emerge as a major issue for the banks were Musk’s dispute with Twitter escalated into litigation and they were forced by a judge to fund the deal. In that scenario, they could struggle to get investors to buy the debt if Musk were unwilling to own the company.

That possibility, however, is seen as remote. Most investors are trading Twitter’s stock on the assumption it is far more likely for the company to reach a settlement with Musk or let him walk away, rather than go through protracted litigation.

Kelechi Deca

Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry

Elon Musk Hints at Reduced Offer Price for Twitter

May 17, 2022

Maverick entrepreneur Elon Musk is stoking wild speculation that he could seek to renegotiate his takeover of Twitter, saying a viable deal at a lower price wouldn’t be “out of the question”.

Twitter shares briefly pared losses in afternoon trading. The stock has been dropping on concern that Musk could walk away from the US$44-billion acquisition altogether. That concern has grown over the past week as Musk has questioned Twitter’s publicly disclosed data on the percentage of spam and fake accounts on its social media service.

Musk pressed further on that front Monday at a Miami tech conference, estimating that fake users make up at least 20% of all Twitter accounts. That was his low end of his estimate on the number of Twitter bots, and he asked rhetorically if the number could be as high as 90%, according to a live-streamed video of his remarks posted by a Twitter user.

Musk, the CEO of Tesla and SpaceX, last week said that his bid to buy Twitter was “temporarily on hold” pending details about how many spam and fake accounts are on the platform. Over the weekend, he tweeted that Twitter’s legal team called to complain that he had violated their non-disclosure agreement. Twitter has declined to comment.

Musk spoke at a conference hosted by a podcast called “All-In” run by Chamath Palihapitiya, Jason Calacanis, David Sacks and David Friedberg. The $7 500 (R120 000)/person event was sold out, and organisers said journalists were excluded from attending. Musk appeared at the Miami summit via video conference.Musk began buying Twitter shares in January and disclosed a 9.2% stake in the company on 4 April. Twitter’s board accepted Musk’s $44-billion bid to buy the company and take it private on 25 April, but the deal has yet to close and Twitter’s shares are trading far below Musk’s offer. One theory is that Musk is angling to pay a lower price for Twitter by raising the issue of fake accounts

Kelechi Deca

Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry

Elon Musk Buys 9.2% of Twitter

April 4, 2022

Tesla CEO Elon Musk has bought a 9.2% stake in Twitter, a regulatory filing showed on Monday, sending the micro-blogging site’s shares soaring 16% in pre-market trading.

In late March, the Silicon Valley billionaire said he was giving “serious thought” to building a new social media platform.

Musk was responding to a Twitter user’s question on whether he would consider building a social media platform consisting of an open source algorithm and one that would prioritise free speech and where propaganda was minimal.

Musk, a prolific user of Twitter himself, has been critical of the social media platform and its policies of late. He has said the company is undermining democracy by failing to adhere to free speech principles.

Kelechi Deca

Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry