Elon Musk and Twitter are on a collision course
Lesson summary
Hi everyone, I’m Jeff and this is Plain English, where we help you upgrade your English with current events and trending topics. JR is the producer and he has uploaded this full lesson to PlainEnglish.com/490. That’s because we’re already up to lesson number 490. Time flies!
Coming up today: Remember how Elon Musk was going to buy Twitter? Ah, yeah, that deal ran into some complications. Today’s lesson is a deep dive into the world of mergers and acquisitions, what we call “M&A” for short. And this is one of those rare instances in which I know what I’m talking about because I spent over ten years working in the M&A industry as a consultant. I’ll try to keep it as understandable as possible, but I’m warning you: this one is a little harder to understand than normal. So get ready!
In the second half of the lesson, I’ll show you what it means to “side with” someone. And we have a quote of the week. Let’s dive in.
Elon v. Twitter: No good outcome in sight
Elon Musk, the world’s richest man, and Twitter, a social media network, are locked in a legal battle that has no good outcome. We last visited this topic in mid-May , in Lesson 468. Here is a brief history lesson.
Elon Musk has long been a power user of Twitter; over 100 million people follow him, making him one of the platform’s most popular users. He is also a loud critic. He has complained that there are too many spam bots on the platform and has agitated for an “edit button.”
Musk is also absurdly rich, with money from PayPal and Tesla. Many rich people decide they want to own media properties. Here in the US, that usually means a rich person buys a newspaper. Jeff Bezos, for example, bought the Washington Post. But Musk decided he wanted a new media company, so he quietly accumulated over 9 percent of Twitter’s shares on the stock market.
Confusion ensued when he announced he didn’t want to use his ownership to influence the company; then said he wanted to sit on Twitter’s Board of Directors; then said, never mind, he didn’t want to influence the company whatsoever ; then said, you know what, I’ll buy the whole thing and implement all my great ideas.
The fog of confusion cleared when he came up with the money needed to buy the whole public company, meaning the other 91 percent of it. Musk pledged to use his influence as the new owner to finally get rid of all the annoying spam bots and improve the user experience. Twitter and Musk signed an acquisition agreement that required Musk to pay $54.20 cents per share for all the shares he didn’t already own. It would be $44 billion in total, a lot of money even for him. The price was Musk’s joke—if you don’t get the joke, just look at the last three digits of the number 54.20.
Then a funny thing happened: the stock market tanked; it went down. And that meant two bad things for Elon. First, all of Twitter’s peer companies declined in value, which meant Twitter was worth less, too. Elon’s joke price of $54.20 already seemed a little rich; after the general decline in the market, the price seemed way too high. The other thing that happened is that Tesla’s stock fell in value. Now, Tesla is where most of Musk’s fortune is. Ergo, if Tesla fell in value, Musk himself was worth less money. So he was simultaneously paying too much and had less money than he did before.
For those two reasons, Musk wanted out of the deal. Unfortunately for him, though, in situations like this, the buyer can’t just cancel the deal because he doesn’t like it anymore or because the market fell.
If the market declines between the time the contract is signed and when the deal closes, that is the buyer’s problem; in other words, that is Elon Musk’s problem. He still has to pay the price he agreed on, even if he doesn’t want to anymore, even if the price now seems too high. The law and the contracts are pretty clear.
Well. A buyer can at least try. Buyers can walk away from mergers and acquisitions for a few narrow reasons. The basic concept is this: if the target company, in this case Twitter, if Twitter withheld information, lied, or otherwise cheated the buyer, and if that lie would affect the company’s value, then and only then can the buyer walk away. Again, I am simplifying, but this is the basic idea.
None of that happened in this case, but Elon is giving it a shot anyway. He said he was canceling the deal because he believes that there are too many spam users on Twitter. This is preposterous. Back in April, he said that the number of spam users on Twitter was a reason he wanted to buy the company! Now, the spam users are a reason he doesn’t want to buy it. He is also grumbling about the amount of data that Twitter provided him.
Twitter is now suing Musk, saying that Musk is required to follow through on his agreement and really buy the whole company. This is awkward to say the least. Twitter is saying: You don’t want us, but you have to buy us anyway.
Believe it or not, this argument will be heard in state court, in the state of Delaware, where most large corporations are based. Delaware Chancery Court, it’s called.
So the court is in an impossible position. There are only two potential outcomes from the case. If the court sides with Elon Musk, then Musk will be required to pay Twitter a relatively small $1 billion breakup fee, but he would not be required to buy the whole company and he would walk away.
But this would open the door to all kinds of problems in the future. If the court sides with Musk, then every buyer in a similar situation in the future will try the same trick. That would not be good.
But would the court really side with Twitter? Think about what would happen in that case. The court can order Elon Musk to buy a company he doesn’t even want! Not only that , he’s hell-bent on destroying Twitter now, at least if you believe his tweets.
That outcome—a court ordering Musk to buy Twitter—that would be good for Twitter’s shareholders—the owners—who would get their $54.20 per share, far more than Twitter’s true value right now.
Great. But what would that mean for the 7,500 people who work there? Or the 450 million users around the world? The boss of this business wouldn’t even want the job! Would the court really order that, just to enforce this contract? Personally, I think the court has to.
So Twitter has two bad potential outcomes. Either Musk walks away, and a shell-shocked Twitter is left with a tarnished reputation, low employee morale, and a depressed value; or the other option is Twitter gets a new owner that doesn’t even want it. What a mess.
More to the story
For those of you following this, or if you’re into finance, I know, I know: there is more to this than I had room for in this lesson. I know he might try to blow up his financing, I know he’s arguing about the fired executives, I know about the NDA, that he disparaged the company publicly, I know about the 5 percent spam estimate, I know about the emoji, I know about the information requests, I know, I know. But listen, I had to stop somewhere.
I read most of Twitter’s legal complaint against Musk. It is extremely well-reasoned and seems airtight. I’m not a lawyer, thankfully, but I don’t see how any of Musk’s arguments would win.
Whatever happens, it will be…interesting.
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