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Elon Musk is Trying to Back out of the Twitter Deal

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I wish I was a betting woman. I would have put some money on Elon Musk trying to back out of his silly offer to buy Twitter a few weeks ago. I did mention that, back in April, he could drop out due to financing issues and his Tesla stock value plummeting. However, that’s not why Musk claims he’s dropping out. Likely because if he was dropping out of the deal because of financial issues, like those he reportedly has, then he’d owe Twitter $1 billion.

But that’s definitely not the reason. No. Musk says it’s totally because of… bots.

Yes, after Twitter published a report stating that only 5% of their users were fake accounts, less than many (myself included) assumed, Elon Musk claimed that, because Twitter hasn’t made their methods available outside of the company, it’s grounds to terminate the deal.

Apparently the “free speech absolutist” doesn’t agree with using bots to speak? Unless he just hasn’t been able to secure the $44 billion required to buy Twitter. After all, interest rates are up, Tesla stock dropped when he announced the Twitter buyout, Bloomberg reports his net worth is down over $110 billion, and he reportedly never secured funding to buy Twitter, reportedly giving up on securing funding last week for his own reasons.

No. No, it’s got to be the bots thing.

Musk’s Retreat

Elon Musk’s net worth may make him one of the richest men in the world, but that’s not liquid. Much of his worth comes from holdings and assets, things he can’t just easily sell. Especially since ownership in companies he runs is important. Perhaps more important than Twitter. As a result, Elon Musk was likely going to buy Twitter largely through loans, using his Tesla stock as collateral.

However, since announcing his attempted buyout of Twitter, Tesla stock has dropped. According to Bloomberg’s Billionaires Index, Musk went from a net work of $340 to $230 billion. Still more money than anyone could reasonably spend in a lifetime, and more than enough to solve many of the world’s problems, but not enough to secure a $44 billion dollar buyout of a public company, it would seem. Sources speaking to The Washington Post said Musk still hadn’t secured funding as of Thursday of last week, and had given up. By Friday, he announced he’d like to back out of the deal.

If it’s for financial reasons, Musk would owe Twitter $1 billion. It’s not much—to Musk, anyway—when you consider he already owns $3 billion worth of Twitter stock.

Musk’s Bot Claims

Elon Musk expressed concern about the number of fake accounts, or “bots” on the platform. This is specifically referring to bad bots, those used to spread disinformation, elevate certain stories or viewpoints, or just mask bad behavior. There are plenty of useful bots on Twitter, like ones that tweet the weather, or stock alerts for game consoles on certain websites. The only one of these Musk doesn’t seem to like is the one that tweeted about his private jet flights.

Twitter responded by publishing the number of estimated fake accounts on Twitter, under 5%. Musk said this didn’t give him enough information, like how Twitter came up with that. They gave him access to data, including the full “firehose” of constant tweet data, and non-public APIs, but Musk says he was not able to figure out how many accounts are bots since he didn’t want to agree with Twitter’s assessment.

Of course, if Elon Musk owns Twitter, he could crack down on bots. He does say that’s part of the reason he’s buying it, to improve the platform. So why would a problem like this actually hold back his deal?

Well, if it’s a funding issue, Musk will owe Twitter $1 billion. If it’s something related to the user count, he may be able to squeeze out of the deal. Only Musk knows his true intentions. While sources state that Musk still wasn’t able to secure funding this week, Musk insists his real issue are the bots he hopes to remove from Twitter anyway. It seems he’s claiming it’s definitely not because the deal may have cost him a large percentage of his net worth.

Twitter’s taking him to court.

Twitter’s Lawsuit

Twitter seems to want to force the original deal. There could be a few reasons for this. They may actually want the buyout, which is for $54.20, much more than Twitter’s current stock price, $32.65 as of this writing. The board may just want that money, even if they have to negotiate a slightly lower amount. They may also see this as the only way to force him to state his claims about Twitter’s bots in court, and, if that excuse doesn’t hold up, get $1 billion out of Musk.

Twitter’s Value

“Musk wanted an escape. But the merger agreement left him little room. With no financing contingency or diligence condition, the agreement gave Musk no out absent a Company Material Adverse Effect or a material covenant breach by Twitter. Musk had to conjure one of those.”

– From Twitter’s lawsuit against Musk

Some have speculated that Musk is intentionally trying to drag out the process to negotiate a lower price per share. Musk’s original $44 billion buyout for $54.20 per share is much more than Twitter’s current worth. It’s possible he’s posturing to try to get himself in a position where he won’t have to come up with $44 billion, but can still buy Twitter.

Twitter did layoffs and fired two executives. They’ve frozen hiring. Musk has been answering employee questions at Twitter as though he was already the owner of the company. The company has already changed dramatically for this deal, potentially at the cost of the company’s value. It could cause permanent distrust in the company from an investment standpoint.

It seems the longer Musk can attach himself to Twitter, the lower its value will go.

What’s Next?

Carl Tobias, a law professor at the University of Richmond, doesn’t think Musk’s argument will hold up in court. “It doesn’t seem to me that a court would find that persuasive,” he says. It’s possible that Musk is trying to back out without the $1 billion fee or he’s trying to lower the price he’ll have to pay for the social media platform. With Twitter’s value consistently dropping since Musk made moves, shareholders already suing Musk for what they call stock price manipulation (allegedly not a first for Musk), and both Twitter employees and users unhappy about Musk’s acquisition goals, this deal can only get worse for everyone involved.

That is, unless Musk backs out and hands over $1 billion to Twitter, who can then work on recovering their worth and rebuilding trust with their users and investors. That might be great for everyone but Elon Musk.

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