Elon Musk Gives Up on Buying Twitter – What’s Next? A Legal Battle That Will Only Result in Losers.
Answers to 3 big questions that this announcement from Elon Musk brings.
In the middle of April 2022, Elon Musk created a surprise by proposing to acquire Twitter for 44 billion dollars. After a short phase of uncertainty, Twitter's board of directors finally accepted his offer. An offer with more than complex financing would have put Elon Musk in trouble for several years.
In the meantime, the crash of tech companies continued on the stock market, and Tesla paid dearly for the latest fad of the man who wants to send humans to Mars before 2030.
Finally starting to think (but shouldn't he have done so earlier?) about the too great financial complexity of his offer to buy Twitter, the Tesla and SpaceX boss finally changed his mind. After several weeks of procrastination, Elon Musk has announced that he is officially giving up on buying Twitter.
A long and costly legal battle has begun between Twitter and the wealthiest man in the world. I propose to answer 3 questions that everyone is asking following this announcement (which was expected for several weeks) by Elon Musk.
1. What happened to make Elon Musk give up on buying Twitter?
In a letter sent to the SEC, Elon Musk's lawyer claims that Twitter did not respect its contractual obligations. Elon Musk accuses, in particular, the social network of having lied about the number of fake accounts on its platform. But the billionaire's hesitations can also be explained by the fall in the stock market of tech stocks, including Twitter, as well as by the erosion of his fortune.
Since the announcement of the purchase of Twitter by Elon Musk, the stock market value of the social network has fallen by about a quarter. It reached $50 in mid-April 2022 when the deal was announced. It is now worth only 38 dollars and is expected to fall further at the beginning of the week, following this announcement by Elon Musk.
Tesla's shareholders also seem to fear that the Twitter buyout will take up a lot of Elon Musk's attention, which is part of the reason for the carmaker's share price decline since April 2022. Since the beginning of the year, Tesla has lost nearly 40% of its value.
This decline complicates the financing of Elon Musk's purchase of Twitter since Tesla shares constitute the bulk of his wealth. The billionaire had planned to take on debt using Tesla shares as collateral, as well as to invest part of his fortune to buy the social network.
2. How did Twitter react to the announcement of the retirement of Elon Musk's takeover bid?
The social network isn't willing to let that happen. “Twitter's Board of Directors is determined to see this transaction through at the price and on the terms agreed to with Elon Musk and intends to pursue legal action to enforce the merger agreement,” board chairman Brett Taylor wrote on Twitter. “We are confident that we will prevail in court in Delaware,” where the company is headquartered.
Elon Musk's reasons for not buying the social network are insufficient, experts say. “Musk is looking for the little beast in the agreement. But for the 'false statements', for example, you don't just have to prove that they are false, but also that they drastically challenge the economic fundamentals of the company,” says Ann Lipton, a law professor at Tulane University.
In other words, it's not enough for the billionaire to prove that the number of bots on the platform is higher than what Twitter said. He also has to prove that these fake accounts are jeopardizing the social network's ability to turn a profit in the long run.
“The merger agreements are made precisely to prevent the acquirers from doing what Musk is trying to do right now: change their minds and seek at all costs to find 'misrepresentations' that they can use to evade their obligations,” the professor continued.
3. What will happen now between Elon Musk and Twitter?
When the markets open on Monday, July 11, 2022, the Twitter stock will certainly fall. It could be between 25 and 30 dollars, instead of 50 last week and ... over 70 the 2021 summer.
For the company, this is an earthquake. It could receive damages. But this is a real fiasco for a listed company. Employees are looking to leave, Twitter's shareholders and partners are in limbo, and its brand image is damaged.
Twitter is expected to file suit by September 2022 in a Delaware court. The trial, which could begin in the fall of 2022, is expected to continue through 2023. The issue of the 5% of bots will be at the heart of the debate. Elon Musk will put Twitter in an awkward position by forcing the company to wash its dirty laundry in public.
Elon Musk should not come out of this fight either. Even if the courts are reluctant to force him to buy the social network, the Tesla and SpaceX boss could face a multi-billion dollar fine. In short, everyone is likely to lose in this situation.
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