In the latest bombshell of the Twitter takeover drama, Elon Musk tweeted this morning that his $44 billion offer was “temporarily on hold” until he could verify the company’s estimate that spam and fake accounts on its platform accounted for less than 5% of the number total users (this number is not new). About two hours later, Mr. Musk tweeted that he was still “committed” to the acquisition.
Twitter shares had already fallen 20% in premarket trading, while Tesla shares jumped 6%.
The tweets fueled swirling speculation that Mr Musk could walk away from the deal as shares of Tesla, Mr Musk’s main source of personal income, fell. Mr. Musk had a secret meeting at Twitter headquarters in San Francisco last Friday to discuss the business and logistics of the deals, DealBook confirmed, implying that he was, at least then, focused on getting it done. (A spokesperson told DealBook that “as part of the transaction planning process, Elon Musk visited the Twitter office for a meeting.”)
And he’s already signed a contract. Beyond the $1 billion breach fee, Twitter could sue Mr. Musk to force him to pay for the deal if its debt funding is intact, per the agreement contract.
Mr. Musk could try to push for a lower price by laying the groundwork for a material adverse change finding, similar to what LVMH did when it acquired Tiffany, citing the financial damage caused by the pandemic. LVMH finally obtained a lower price for the operation.
But the threshold for “adverse change” is high. And given the speed and limited diligence with which Mr. Musk pursued the deal on Twitter, he is unlikely to find a sympathetic judge. Mr. Musk has previously told investors he thinks Twitter can quintuple its revenue, which would make Twitter a steal 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 specializes in corporate mergers. “If after buying a house, you say, ‘I want to get a lower price,’ the seller will say no.”
This deal looks different than a week ago, and now we know more about Twitter’s challenges. Parag Agrawal, the company’s chief executive, said yesterday that two senior executives were leaving. (These executives tweeted that they had been made redundant.) Mr. Agrawal also said he had frozen most new hiring and was cutting spending. He said the moves stem in part from the company’s failure to meet its audience and revenue growth targets. Twitter shares closed yesterday at $45.22 – well below the $54.20 offered by Mr Musk. More broadly, technology stocks are facing a bloodbath.
Tesla shares are under pressure. Mr Musk may be the richest man in the world, but much of his wealth is tied to Tesla – which he has leveraged heavily to help build the rest of his business empire. Tesla shares were at $1,145 the day it announced its initial stake in Twitter. They were at $728 yesterday. Mr Musk had previously sought to reduce the extent to which he was leveraging his Tesla holdings to buy Twitter: He first said he would take out a $12 billion loan against his Tesla shares before cutting it to 6 .25 billion dollars. (He would seek to completely cancel the loan.)
Mr. Musk’s tweets could come under scrutiny by the Securities and Exchange Commission. They moved shares of Tesla and Twitter, saying the information should have been something shareholders discovered in a public filing with the agency. Should this be added to the long list of regulatory issues Musk has encountered with this bid?