by Michael Brand
On Monday, June 6th, Elon Musk’s attorneys sent a letter to Twitter’s Chief Legal Officer, detailing the disagreement between the two companies. In the letter Musk’s attorneys were clear that the conflict resided on the accuracy of the number Twitter was providing on the amount of fake users. The rumor of Musk wanting to discard the deal, has sprouted since he signed in April. The letter features direct language that turns the rumor into reality.
While the claims in the letter seem unfounded, the letter has sparked action across the country. Attorney General of Texas Ken Paxton, “issued a Civil Investigative Demand (CID) to investigate whether Twitter’s reporting on real versus fake users is ‘false, misleading, or deceptive’ under the Texas Deceptive Trade Practices Act” (Paxton).
Additionally, the stocks of both companies have been impacted since the beginning of the conflict. Tesla’s stock dropped 61.5 points last month, and fell another 30 points on Tuesday morning, before rebounding Wednesday morning after BYD a “Chinese electric vehicle maker said it was preparing to supply batteries to Tesla” (Saigol). Twitter stock fell 7.5 points last month and after the letter stock fell “as much as 5.6% following its statement of its intent to hold Musk to the deal’s terms” (Kilgore). Ultimately, the letter will end up being a footnote in the saga of Musk and the Twitter deal.
The saga has included Musk making the following commitments after he owns Twitter: making Twitter more politically neutral with complete free speech, authenticating all humans, making Twitter ad free (O’ Brien). However, if one looks past the countless commitments, the saga reveals an abundant amount of evidence of Musk’s attempt to back out of the deal including the following: when signing the deal on April 25th Musk waived his right to due diligence, yet on May 9th Musk’s lawyers asked for additional numbers before Musk on May 13th said “that he wants more details about how many of the social platform's accounts are fake or spam,” and the letter serves as the clearest signal of he desire to discard the deal (Bond). The letters on Monday “lay the groundwork for Musk to back out with fewer penalties” as “eventually he’ll ask questions they won’t answer, and then he can walk away” (Paul). There is one other potential motive for Musk in terms of making such a big deal out of the fake users - renegotiation.
Musk’s original proposal included buying Twitter’s stock at a 38% premium. However, since the time of the deal Twitter’s stock has dropped a significant amount, making it a much worse deal for Musk. The problem with simply backing out for Musk is that it comes with a billion dollar price tag as the break fee is part of the contract he signed in April. As a result, the combination of Twitter’s stock worsening given the uncertainty of the deal and shareholders wanting to get a deal done could push Twitter’s executives back to the negotiating table in Musk’s favor. Musk hinted at this possibility in the middle of May when he said a deal at a number lower than the original $54.20 a share was not “out of the question” (Hull).
Even with two months of events to investigate, the true motives of the letter will remain unknown until late this year when Twitter and Musk are forced to figure out what they are doing in terms of the deal. What’s important to remember when looking forward in the saga is that no move made by either side is simple, but rather is complex and should never be taken at face value. If the outcome is the death of the deal, this letter may be the first major footnote in the tragic story of Musk and his masterful ability to escape contracts when feeling buyers remorse.
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