In the latest bombshell in the Twitter takeover drama, Elon Musk tweeted this morning that his $44 billion bid was “temporarily put on hold” until he could verify the company’s estimate that spam and fake accounts on its platform accounted for less than 5 percent of its total user base (that number is not new† About two hours later, Mr. Musk tweeted that he was still “committed” to the takeover.
Twitter shares were already down 20 percent in premarket trading, while Tesla shares were up 6 percent.
The tweets sparked swirling speculation that Mr Musk may be pulling out of the deal as shares of Tesla, Mr Musk’s main source of personal income, plummeted. Mr. Musk had a secret meeting at Twitter’s headquarters in San Francisco last Friday to discuss business and deal logistics, DealBook has confirmed, meaning he was focused on going through with it at least then. (A spokesperson told DealBook that “as part of the transaction planning process, Elon Musk visited Twitter’s office for a meeting.”)
And he’s already signed a contract. In addition to the $1 billion severance payment, Twitter could sue Mr. Musk in court to force him to pay the deal if his debt financing is intact, according to the deal contract.
Mr. Musk may be trying to push a lower price by citing a finding of material adverse changes, similar to what LVMH did in its acquisition of Tiffany, citing financial losses caused by the pandemic. LVMH ended up getting a lower price for the deal.
But the threshold for “adverse change” is high. And given the speed and limited dedication with which Mr. Musk pursued the Twitter deal, he’s unlikely to find a sympathetic judge. Mr. Musk has already told investors he thinks Twitter could quadruple its revenue, making Twitter a $44 billion bargain.
“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. “If after buying a house you say, ‘I want to get a lower price,’ the seller will say no.”
This deal looks different from a week ago, and now we know more about Twitter’s challenges. Parag Agrawal, the company’s CEO, said yesterday that two top executives would be leaving. (Those executives tweeted that they had been fired.) Mr Agrawal also said he had frozen most of the new hires and was cutting his spending. He said the moves stemmed in part from the company’s failure to meet audience and revenue growth goals. Twitter shares closed yesterday at $45.22 – well below the $54.20 Mr. Musk has offered. More broadly, technology stocks are facing carnage.
Shares of Tesla are under pressure. Mr. Musk may be the richest man in the world, but much of his wealth is tied up in Tesla, which he has used heavily to build the rest of his business empire. Tesla shares were $1,145 the day he announced his first stake in Twitter. Yesterday they were at $728. Mr. Musk had already tried to cut the extent to which he used his Tesla shares to buy Twitter: He first said he would take a $12 billion loan for his Tesla shares before he reduced that to $6.25 billion. (He reportedly plans to cancel the loan altogether.)
Mr. Musk’s tweets are subject to investigation by the Securities and Exchange Commission. They moved shares of Tesla and Twitter, indicating that the information should have been something shareholders discovered in a public filing with the agency. Should that be added to the long list of regulatory issues Musk has encountered with this bid?