Why Elon Musk is *Really* Ghosting Twitter

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Elon Musk is at it again.

This Twitter vs. Elon debacle is currently the biggest drama in finance-land, and is turning the suits on Wall Street into gossipy teenagers.

If you need a refresher on how Elon and Twitter went from BFFs to mortal enemies, here it is: in April of this year, Elon announced that he was going to buy Twitter at $54.20 a share, which would put it at a 44-ish billion dollar sale.

Over the month of May, Twitter’s stock price fell more than 11%. Analysts have said this decline was a mix of overall market downturn, as well as confusion and mixed feelings over Elon’s potential ownership of the company.

Then in May, Musk said that the Twitter deal could not move forward. He claimed that he asked Twitter to provide data on the prevalence of fake accounts, and that they did not send him the information that he needed, and as a result, Twitter was in breach of the agreement… well, in Elon’s view anyway.

He said, she said.

But Twitter vehemently denied Elon’s allegations, and then added their own allegations to this pile of utter madness.

The company stated it had “bent over backwards” to get Elon the data he wanted, and that it was actually Elon who breached the terms of the agreement. Specifically, Musk tweeted a description of how Twitter evaluates fake accounts that was false, and painted Twitter as borderline shady.

Elon tweeted that Twitter’s sample size to study spam accounts was 100 accounts. That would be an extremely low sample size, as Twitter reportedly has over 300 million monthly active users. Using 100 accounts to make inferences for 300 million accounts is… not right. And that’s what many people thought when Elon shared that on Twitter. Plus, Musk said that according to his own independent research, there is a chance that over 90% of daily active users on Twitter are bots. That was alarming to many Musk fans, because who wants to be on Twitter if it’s mostly robots and fake accounts?

But the thing is: Elon was wrong. Twitter had sent Elon a description of how they evaluate bots, and told him that they look at a random sample of 9,000 accounts per quarter— not 100. Big difference. In response, Musk said he hadn’t read that report. Yikes.

So as we know from our Money Minutes, public companies are sensitive to public opinion. A company’s stock price can be greatly affected by the kind of press they’re getting. So it’s clearly problematic for Twitter shareholders that Elon is tweeting to his 101.6 million followers things that make the company sound sketchy.

Okay I have to pause now to say: the fact that Elon is using Twitter as a platform to talk about his deal with Twitter is so meta— but no, not the Facebook Meta— I’m talkin’, literally meta. Musk is using Twitter against itself, which is so ironic I wouldn’t believe it if I didn’t see it playing out in front of me. Okay, back to business.

Here’s where we’re at now.

Twitter is now suing Elon in Delaware to force him to go through with the deal and buy the company. In a particularly fiery section of the lawsuit, Twitter stated: “Musk refuses to honor his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests. Having mounted a public spectacle to put Twitter in play, and having proposed and then signed a seller-friendly merger agreement, Musk apparently believes that he—unlike every other party subject to Delaware contract law—is free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away,” and “Since signing the merger agreement, Musk has repeatedly disparaged Twitter and the deal, creating business risk for Twitter and downward pressure on its share price.”

In the lawsuit, Twitter argues that Musk’s issue with the deal is not that he’s missing data (which, they argue is not true anyway), but that Musk’s real issue is the market downturn. The lawsuit argues, “Rather than bear the cost of the market downturn, as the merger agreement requires, Musk wants to shift it to Twitter’s stockholders.”

What's in it for Twitter?

So, what is Twitter hoping to gain with this lawsuit? Well, potentially 44 billion dollars and the sale they were promised. This wouldn’t be the first time a company is legally forced to make good on an acquisition. The Wall Street Journal reminds us that Tyson Foods Inc. was forced to acquire meatpacker IBP Inc. in 2001, after Tyson tried to back out of the deal.

But some reporters, like the folks at Intelligencer, believe that this lawsuit may just be Twitter kicking the can down the road until Musk is backed into a corner. This is a little fuzzy now with the lawsuit, but originally, the terms of their agreement were that either party had until October 24th, 2022 to terminate the agreement. So some have speculated that this lawsuit is just Twitter running out the clock until Musk has no more time to terminate the agreement.

But even if Musk is allowed to abandon the deal, he will still likely have to pay a $1 billion dollar fee for terminating the deal. Not to mention, Elon just filed a countersuit.

My two cents?

Here’s the ruling that I would give if I were the judge in Delaware. Frankly, I’m on Twitter’s side. Twitter did give Musk huge access to their data. In fact, Twitter gave Musk over 49 trillion bytes of data. That is a huge look behind the curtain. It really does seem to me that Musk is trying to get out of a deal that he didn’t think through completely, and his decision to terminate the agreement comes from the feelings of entitlement you get by being richest man in the world. And as the richest man in the world, Elon Musk will be okay. But, the Twitter employees, the folks who are getting laid off because of the whims of one erratic man, are not. I’m on their side— and I want the outcome that’s best for their sake. That’s my verdict.

xo,

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