Elon’s Out
Musk lost interest in pretending to buy Twitter.
Bloomberg, July 9, 2022
I have occasionally spotlighted the newsletter / commentary written by my Bloomberg colleague Matt Levine (See, e.g, this, this, this, or this). Nobody cuts through the complex world of Securities Law, M&A and SEC regulations like Matt. Here is an excerpt of his most recent post. You can subscribe at this link.
Oh Elon
I think it is helpful to start with the big picture. Elon Musk is the richest person in the world, and, like many other rich people, he has some unusual and expensive hobbies. One of his hobbies is that he sometimes likes to pretend that he will acquire public companies.1 He seems to find this fun, and why not? When he pretends that he’ll buy a public company, it creates a big drama with him at the center of it. He gets to boss people around, mobilize legions of bankers and lawyers and financing sources and random hangers-on2 hoping to get the deal done, and then when he gets bored he can tell all those people to go home. “Haha got you,” he can say, and they can all have a good laugh, or he can anyway.
This is an expensive hobby! When Musk pretended in 2018 that he was going to take Tesla Inc. private, he had to pay the US Securities and Exchange Commission a $20 million fine and stop being the chairman of Tesla’s board. You’re not really supposed to go around pretending that you will buy a public company; the SEC sometimes considers that securities fraud. But Musk is very rich and he can easily afford to pay $20 million for his little joke. His appetite for pretending to buy public companies was, apparently, undiminished.
So this April, Musk announced that he wanted to buy Twitter Inc. Why not? Musk seems to get a lot of joy out of using Twitter, and pretending to buy Twitter is a good way to create drama on Twitter. At the time, I assumed that, as with Tesla, he was doing a bit. “Ordinarily,” I wrote, “if a billionaire chief executive officer of a public company offers to buy a company, the odds that he is kidding are quite low. When it’s Elon Musk, the historical odds are, like, 50/50.”
But he surprised me by quickly lining up financing (paying millions of dollars of fees to banks for commitment letters) and signing a merger agreement with Twitter. If he was pretending he was going to buy Twitter, those were pretty elaborate lengths to go to? But he frequently goes to elaborate (and expensive) lengths for a joke — he sold 20,000 branded flamethrowers to make a joke about flamethrowers, and also founded Boring Co. to make a joke (???) about tunnels — so who knows. Would he line up billions of dollars of financing and sign a binding merger agreement with a specific-performance clause and a $1 billion breakup fee as a joke? I mean! Nobody else would! But he might!
In any case, shortly after he signed the deal, the market went down. Twitter’s stock closed at $44.48 on April 12, the day before Musk announced his offer; he agreed to pay $54.20 per share (420 is a weed joke). Since then Twitter has surely lost value: The stock closed at $36.81 on Friday, and other social-media stocks are down significantly since April. (Snap Inc. is down about 57% since April 13; even Meta Platforms Inc. — Facebook — is down more than 20%.) Meanwhile, Tesla Inc. stock, the main source of Musk’s wealth, is down almost 27% since he announced his offer for Twitter. Twitter is worth less than Musk agreed to pay for it, and Musk is less rich than he was when he agreed to buy it. These are not valid reasons for Musk to get out of the deal: The legally binding merger agreement that Musk signed with Twitter does not allow him to terminate the deal due to changes in the stock market or his own wealth. But they are reasons that Musk might want to get out of the deal, even if he wasn’t kidding when he first signed it.
Still, one should remain open to the possibility that he was kidding when he first signed the deal. “Elon Musk had a well-thought-out business and financial plan for Twitter that worked in the economic conditions of early April 2022, but conditions have changed and the model no longer works” does not strike me as the most plausible description of what is going on here. “Elon Musk whimsically thought it might be fun to own Twitter, so he signed a merger agreement without taking it too seriously and then lost interest a week later” feels more true to the situation. My first reaction to his proposal to buy Twitter, that it was a joke, may have been the correct one. He was just a lot more committed to the bit than I expected.
Elon Musk said he’s terminating his $44 billion agreement to acquire Twitter Inc. and take it private, triggering a legal fight with the company.
Twitter has made “misleading representations” over the number of spam bots on the social network, and hasn’t “complied with its contractual obligations” to provide information about how to assess how prevalent the bots are, Musk’s representatives said Friday in a letter to Twitter as part of a regulatory filing.
Twitter said it will fight back in court.
Here is the letter, signed by Mike Ringler of Skadden, Arps, Slate, Meagher & Flom LLP, Musk’s lawyer. It … ehhhhhhh. Ehhhhhhhhhhhhhhh. Do we have to talk about this? Fine. Ringler offers three pretexts for why Musk should be allowed out of the deal…
Go see the full column here.
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1. This is an *unusual* rich-person hobby, but by no means an *unprecedented* one. Famously Donald Trump spent some time in the 1980s pretending he was going to buy public companies. But he did this as a way to make money — by extracting greenmail out of the companies — while Musk seems to do it mostly for fun.
2. And, let’s face it, writers of financial newsletters.
