Update, July 8, 2022, at 5:40 p.m.: He went and did it. On Friday, Elon Musk said in a filing to the Securities and Exchange Commission that he informed Twitter he was “terminating” the deal to buy the company. As Alex Kirshner wrote below, it’s not nearly that simple.
A thing happened. In late April, Elon Musk signed a contract to buy Twitter for $54.20 per share. It looked, to some of us, like he had just spent $44 billion on the world’s largest pain in the ass, an albatross that would weigh on his much more lucrative electric-car business (he was leveraging his Tesla stock and splitting his attention) and compromise his weird, burgeoning status as a darling of the American right (it’s a lot easier to crow about “free speech” when you don’t own the public square). And then another thing happened. Tech stocks fell hard as the spring went on, and $54.20 (which was a premium even when Musk offered it, before the market had gone into bear territory) began to look like a massive overpayment.
So a third thing happened. Musk started searching for ways to not buy Twitter at $54.20 per share. His fundamental problem was that he had signed a contract to buy Twitter for that amount, and that contract, according to most qualified people who looked at it, gave him almost no wiggle room to exit the deal before closing. Absent proof that Twitter had misled him in a major way—one that had a “material adverse effect” on the company’s value, a high standard to meet—he would need to pay a $1 billion breakup fee to walk away. And even that might not do it, as the contract established that Twitter could take Musk to court and try to get a judge’s order to make him pay every red cent of his $44 billion bid.
Musk had his answer: He did not want to buy Twitter for what he agreed. But he needed a question that could make that answer work in public and in court, and his lawyers settled on, “Hey, Twitter. How many fake accounts do you really have?” Twitter has estimated that less than 5 percent of its users are fake accounts or bots. The company has been transparent (including, recently, CEO Parag Agrawal doing a big thread about it) that the 5-ish percent figure is just its best estimate. Musk has kept raising the subject. In June, Twitter gave Musk a big ol’ chunk of tweet data, nominally so he could do his own investigating but really so that he’d have less of an opening to claim, in service of nuking the deal, that Twitter was withholding crucial information. And you will never believe this, but it is now July, and Elon Musk’s camp is still claiming that Twitter has not gone along with his fact-finding mission about spam.
“Twitter has not been cooperative,” the Washington Post quotes someone “familiar with the discussions” (almost certainly Musk or someone working for him) as saying. The Post says the whole deal is “in peril.” I am not sure what that means, and I am not sure that the Post or Twitter or Musk knows just what that means either. Anyway, Musk is not going to pay the $54.20 premium of his own accord, so he and Twitter are either going to court or someone (maybe everyone) is going to cave in a settlement. Musk does not want to pay up, and Twitter does not want him to tank its stock price by successfully fleeing.
Whatever the outcome, it will be a test of what really matters in billionaire business in 2022. In one corner, there are laws and contracts and old-school conventions about the way negotiations work—most notably, the concept that when someone signs papers agreeing to do something, they have to do it or pay a penalty. In the other corner is complete and total bullshit, wielded by a bullshitter who is attempting to worm his way to a preferred outcome on the strength of being not just the richest person in the world, but also the most annoying. It is a heavyweight bout between how business is done by most people and how it is done by one person. We are all about to locate the outer limit of what hucksterism can achieve.
From the outset, Musk had treated both his Twitter contract and securities law like a coloring book. His initial disclosure of Twitter share-buying missed a Securities and Exchange Commission deadline, likely saving him well north of $100 million on his early purchases. When he told the world he was gobbling up Twitter stock, he did so in paperwork that said he would be a passive, not active, investor. There are at least one and probably two securities law breaches here. The SEC can try to make Musk pay a lot of that money back. He might even do it! But probably not until after protracted legal jostling and public trolling, two of his favorite things when it comes to that particular agency. “Elon does what he does,” University at Buffalo accounting and law professor Michael Dambra told me after Musk handed the SEC these actions on a platter. “I think he does like to troll the SEC, and historically the punishments for these delayed filings are small. And compared to someone with massive wealth, such as Elon, maybe that wasn’t a big interest in his mind to make sure that he got his paperwork done.”
Musk’s purchase contract says that he may not “disparage the Company or any of its Representatives,” but he’s done that numerous times since signing the deal. He used Twitter to reply to Agrawal’s spam thread with a poop emoji and to invite harassment of at least one Twitter executive, in addition to everything else he’s said about the company he is still under contract to buy. Could Twitter try to blow up the deal because Musk used its nondisparagement clause as bath tissue? Sure. But Twitter doesn’t want that. Its board is made up of shareholders who want the deal to happen so that they and others can collect a premium. Musk is a soccer player trying to kick the ball into his own net, and Twitter is trying to stop him.
Musk’s stated rationale for putting the deal on the skids, to whatever extent he can do that, is equally farcical. As Bloomberg’s Matt Levine noted when Musk unveiled this strategy, he was explicit during his bid that defeating the spam bots was on his agenda if he could close the deal. It’s right there:
Putting aside whatever legal maneuvering Musk’s team devises, he has pivoted from wanting to buy Twitter in part because of bots to, uh, not wanting to buy Twitter because of bots. Twitter’s lawyers should take him seriously, but the rest of us are under no obligation to do anything more than roll our eyes.
This is amateur hour being played out by professionals. But there is a decent pattern of evidence to suggest that it is going to work. Twitter has not yet said much at all in public, other than that it is cooperating with Musk and the deal is moving ahead and everything is hunky dory. The stock is trading well below the $54.20 purchase price and has been for two months, in a clear signal that Wall Street, collectively, does not think the deal will come together at the agreed rate. And the Washington Post, a reputable newspaper with many plugged-in reporters and experienced editors, is convinced enough that the deal is in real danger that it allowed members of Musk’s team the opportunity to shape a story without their names attached. “Elon Musk’s Deal to Buy Twitter Is in Peril” is a declarative headline.
Anyway, Wall Street thinks it’s in peril. At least a swath of the financial press thinks so, too. There is no clear reason the deal wouldn’t close, other than that Musk wants out and has either the financial might or the cult of personality behind him to make it happen despite all of the obstacles he erected in his own way. Somehow, in Musk’s case, it remains right there on the table that he gets everything he wants.