The Musk-Twitter deal became a multi-billion dollar ‘cowardly game’

By Abram Brown

In the last two months, Elon Musk’s $ 44 billion Twitter bid has been embellished with a number of descriptions, such as: “epic”, “drama”, “conflict”, “battle” or even phrase “Capitalism is gone”. When Musk is involved in a story, and when the narrative is constantly changing – as has happened in this case – one easily resorts to imaginative descriptions to describe the situation.

Why hold back now? Musk certainly did not hold back… The plot on the Musk-Twitter series took another turn on Monday, after the prospective buyer stated directly what he had been implying in recent weeks: He will cancel the deal and leave if Twitter does not give him access to the data, which were used to calculate the value of the company, in terms of bots and fake accounts that may inflate the estimates for traffic to the platform. Twitter states that it can not satisfy Musk’s request and will not do so.
Somewhere here, calling the Musk-Twitter deal “epic” or “drama” rather degrades reality. It is now a multi-billion dollar game. Musk is behind the wheel of one car, Twitter’s board is behind the wheel of another and the two vehicles are moving head-on towards each other.

The dynamics of the game are based on Musk’s claim that there are far more bots on Twitter than the company acknowledges. Twitter and the CEO of Parag Agrawal continue to claim that these spammers account for less than 5% of their daily active accounts. Musk says the rate is much higher, possibly five times higher.

Musk said Monday that Twitter’s inability to provide him with bots data was a “substantial breach” of the deal, so crucial that it denounced it. He had previously argued that the discrepancy between his own assessment and the numbers presented by Twitter was sufficient to invalidate the agreement, as this would either mean deception on Twitter or could fall into the category of so-called “substantial disadvantages”. change “- a sudden event that substantially changes the course of Twitter. If advertisers found out that the platform was in fact a “ghost town” full of fake profiles – and therefore non-existent people – they would probably not be so willing to pay to advertise on Twitter. Bad development for a company that depends on advertising revenue.

Can Musk prove in court either the fraud or the “substantial adverse change”? Lawyers and legal experts are swaying, with the scales tilted to “no”. As for Twitter not sharing bots’ data, “this is a very delicate issue,” they say. “There is no specific clause in the agreement that obliges Twitter to do what Musk is asking for, so Twitter does not violate the agreement if it refuses,” said George Geis, a professor of corporate law at the University of Virginia. “Most merger agreements stipulate that the seller must assist the buyer with due diligence. But Musk waived that right.” Indeed, he relinquished that right in April when he first reached an agreement with the Twitter board.

But what if Musk is not looking for a well-founded legal case? What if he just wants to “leverage”, as Geis says. “My feeling is that at some point, maybe a week or two ago, he asked his lawyers to take a closer look and said, ‘Find me some real leverage for the transaction.'”

That’s why it does not matter if Musk or Twitter is right about bots. Musk does not want to be “right” and win a lawsuit. He just needs to find something to start a case and drag Twitter into lengthy litigation. And he has probably already found enough evidence to do so, say legal experts. Musk can afford to wait and afford the multimillion-dollar fees of his legal advisers. Listed Twitter does not have the same luxury of time. The Twitter board may have considered the sale of the company to Musk for $ 54.20 / share a few months ago as the right move to garner investor confidence – given that the US stock market has plunged. since the agreement was approved. However, does the transformation of a company into a “risky multi-year pending” fulfill this purpose, while the courts will consider Musk’s claims? Even if the board accepts this, the shareholders will probably not follow. The agreement must be put to a vote by investors, at a later date within the year.

How will this “game of cowardice” end? For the sake of an integrated approach, let’s make a substantiated guess: if markets remain in recession, Twitter’s vehicle will hit the brakes first and the Board will enter into a renegotiation process. The company has more to lose compared to Musk than a lengthy lawsuit.

Two more elements that support this working hypothesis. A few weeks ago, Musk restructured the funding for his offer, removing a risky loan. In general, one does not play on the terms of a financing that will not be needed. In addition, most disputes over acquisitions and mergers almost always end with the two parties finding each other and completing the transaction. Ask a lawyer (or more) and you will find that they have one or two cases reported to you through the courtroom. A more recent example: in 2018, a court allowed the German healthcare company Fresenius to withdraw from the acquisition of Akorn, a manufacturer of generic drugs. But Akorn’s problems were far more fundamental than the issue of bots on Twitter – even if we exaggerated it too much.

The case of Fresenius-Akorn is an exception. Most of the time, things end up like the acquisition of Tiffany & Co by LVMH. The two luxury goods companies sued each other in 2020, after LVMH tried to break the agreement for the acquisition of Tiffany, citing the effects of the pandemic. Eventually, they came to an out-of-court settlement, after Tiffany agreed to reduce the transaction price by less than 3%.

“If you want a discount, you do not go and say, ‘I want a discount,'” said Andrew Verstein, co-director of the Lowell Milken Institute for Business Law and Policy at UCLA. “You just find a pretext for the seller to go to those who approve the deal and tell them, ‘Look, this guy traded hard, pointed out some problems, and we were willing to make a new deal.'”

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* Musk threatens to pull out of Twitter acquisition deal