Elon Musk announced a 9.2% stake in the Twitter company on March 14. On April 5, the CEO of Twitter, Parag Agrawal, announced that Musk would join the company’s team of management. On April 10, he later retracted his comments. Musk appeared to have lost interest in becoming a member of the team.
Elon Musk then went on to say that he was interested in purchasing the company’s entire stock for $44 billion or $54.20 per share. To do so, he’d need to borrow $13 billion against the Tesla stock after selling some of the stocks for $21 billion. Twitter, unsurprisingly, accepted Musk’s deal in late April as this was a 38% over market value for the company.
Everything seemed to be fine until Musk complained on May 13 (and again on the 17th) that some Twitter accounts were fake or bots. He insinuated that the percentage of the fake accounts to be 20%. He claimed that the agreement required that the number of Twitter users be accurate for him to buy the company at $54.20 per share. Noticeably, he made this claim as both Twitter and Tesla stock saw a downturn.
He stated that his conditions to accepting the deal would be the Twitter board proofing that the bots were less than 5%. The grievances appear petty, given that the Twitter deal was not based on economics or the range of Twitter subscribers.
Why doesn’t Musk buy Twitter?
There are several possible reasons for Elon Musk’s desire to distance himself from the Twitter deal.
Technology stocks, particularly media stocks, have been declining. This means that Twitter technology is less valuable than it had been previously. And Musk may not want to take control over a company that he cannot make more profitable.
There were also noticeable changes when Elon Musk moved his hands over his Tesla stock holdings. Members believed that because Musk would be preoccupied with managing his new venture, he would pay less attention to the stock entity.
Tesla holdings’ stock dropped after Musk expressed interest in purchasing Twitter. As a significant stockholder, Elon Musk has suffered a substantial loss due to the stock’s decline. The Twitter board put pressure on Musk because the deal was closed. At this point, because much of the deal was contingent on Tesla’s stock being highly valued, it’s possible this deal could bankrupt Musk.
Can Elon Musk buy his way out?
Not without significant legal backlash. Twitter would have every right to sue the billionaire since his reason for terminating the contract is currently unfounded and bots certainly weren’t the topic of conversation (and for all we know, the contract) prior to signing.
What are his legal grounds for backing out?
Based on what we know of the contract, Elon Musk can back out if Twitter doesn’t provide the data needed to secure his funding. It’s the one part of the contract that’s nebulous enough for him to take advantage of. If Twitter is unable to provide “performance-related” data then they must allow Musk to analyze the data. Because it’s so vague, it’s entirely possible that this is how Musk (and his team of lawyers) get him out of the deal. Although the legal fees are sure to be costly.