In the latest bombshell in Twitter takeover drama is Elon Musk tweeted this morning that his $44 billion bid was “temporarily on hold” until he could confirm the company’s estimate that spam and fake accounts represented less than 5 percent of all users on its platform (that number is not new). About two hours later, Mr. Musk tweeted that he was still “committed” to the acquisition.
Twitter stock is down 20 percent in premarket trading, while Tesla stock is up 6 percent.
The tweets led to swirling speculation that Mr. Musk might be going out of business as shares of Tesla, Mr. Musk’s main source of personal income, have fallen. Mr. Musk had an undercover meeting at Twitter’s San Francisco headquarters last Friday to discuss deals and business logistics, DealBook has confirmed, implying he was focused on getting it done, at least at the time. (A spokesman told DealBook that “Elon Musk visited Twitter’s office for a meeting as part of the transaction planning process.”)
And he has already signed a contract. Aside from the $1 billion breakup fee, Twitter could take Mr Musk to court to force him to pay for the deal if his debt financing is intact under the deal contract.
Mr. Musk could try to push for a lower price by laying the groundwork for identifying material adverse changes, much like LVMH did when it acquired Tiffany, citing financial damage caused by the pandemic. LVMH ultimately got a lower price for the deal.
But the threshold for “adverse changes” is high. And given the speed and limited diligence with which Mr. Musk followed the Twitter deal, he’s unlikely to find an understanding judge. Mr. Musk has already told investors that he believes Twitter can quintuple its revenue, which would make Twitter a bargain at $44 billion.
“He’s already signed on the dotted line that says he bought a house,” said Brian Quinn, an associate professor at Boston College Law School who focuses on corporate mergers. “After buying a home, if you say, ‘I want a lower price,’ the seller will say no.”
This deal looks different than it did a week ago, and now we know more about Twitter’s challenges. Parag Agrawal, the company’s chief executive, said yesterday that two top executives were leaving the company. (These executives tweeted that they had been fired.) Mr Agrawal also said he had frozen most new hires and was cutting spending. He said the moves were partly due to the company not meeting audience and revenue growth goals. Twitter shares closed at $45.22 yesterday – well below the $54.20 offered by Mr. Musk. More broadly, tech stocks are in for a bloodbath.
Tesla stocks are under pressure. Mr Musk may be the richest man alive, but much of his wealth is tied to Tesla – which he has used heavily to build the rest of his business empire. Tesla shares were at $1,145 the day he announced his initial stake in Twitter. They were at $728 yesterday. Mr. Musk had already sought to reduce the extent to which he used his Tesla holdings to buy Twitter, initially saying he would take out a $12 billion loan against his Tesla stock before he reduced it to $6.25 billion. (He’s reportedly trying to scrap the loan altogether.)
Musk’s tweets could come under scrutiny by the Securities and Exchange Commission. They misplaced stock from Tesla and Twitter, saying the information should have been something shareholders learned about in a public filing with the agency. Should that be added to the long list of regulatory issues Musk has encountered with this offering?