In the latest bomb in the Twitter takeover drama, Elon Musk tweeted this morning that his $44 billion bid was “temporarily on hold” until he could verify the company’s estimate that spam and fake accounts on its platform made up less than 5 percent of total users (that number is not new). About two hours later, Mr. Musk tweeted that he was still “committed” to the acquisition.
Twitter shares had already fallen by 20 percent in premarket trading, while Tesla shares had jumped by 6 percent.
The tweets fed into swirling speculation that Mr. Musk may back out of the deal, as shares of Tesla, Mr. Musk’s main source of personal income, have tumbled. Mr. Musk had a covert meeting at Twitter’s San Francisco headquarters last Friday to discuss business and deal logistics, DealBook has confirmed, implying he was, at least then, focused on going through with it. (A spokesperson told DealBook that “as part of the transaction planning process, Elon Musk visited Twitter’s office for a meeting.”)
And he has already signed a contract. Beyond 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, per the deal contract.
Mr. Musk might be trying to push for a lower price by laying the grounds for a finding of material adverse change, similar to what LVMH did in its acquisition of Tiffany, citing financial damage caused by the pandemic. LVMH ultimately got a lower price for the deal.
But the “adverse change” threshold is high. And given the speed and limited diligence with which Mr. Musk pursued the Twitter deal, he is unlikely to find a sympathetic judge. Mr. Musk has already 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 focusing on corporate mergers. “If after you buy a house, you say, ‘I want to get 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. (Those executives tweeted that they had been fired.) Mr. Agrawal also said he had frozen most new hiring and was slashing spending. He said the moves stemmed partly from the company’s failure to hit goals in audience and revenue growth. Twitter shares closed yesterday at $45.22 — well below the $54.20 Mr. Musk has offered. More broadly, tech stocks are facing a blood bath.
Shares of Tesla are under pressure. Mr. Musk may be the wealthiest man in the world, but much of his wealth is tied up in Tesla — which he has heavily leveraged to help 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 been looking to lower the extent to which he was leveraging his Tesla holdings to buy Twitter: He first said he would take a $12 billion loan against his Tesla shares before reducing that to $6.25 billion. (He is reportedly looking to scrap the loan altogether.)
Mr. Musk’s tweets could come under scrutiny from the Securities and Exchange Commission. They moved shares of Tesla and Twitter, indicating that the information should have been something shareholders found out about in a public filing with the agency. Should that be added to the long list of regulatory issues Musk has run into with this bid?