Why the hell is Elon Musk doing all this? This is the billion-dollar question, the key to this incredible – and at times grotesque – financial saga between the richest man in the world and his favorite social network, Twitter. Less than three months after forcing the blue bird to sell in two weeks, Elon Musk threw in the towel in the ring on Friday evening, July 8th. Immediately, Twitter announced that they would take the case to court to force it to continue trading, at the price stipulated in the contract, that is, $ 44 billion. In response, the quirky billionaire was pleased mocking tweets and enigmatic, suggesting that he is pulling the strings in a plan that is as obscure as it is ingenious. Like this meme, where he imagines himself as Chuck Norris – the cult actor from the 1970s – leading a game of chess that he wants to win alone against everyone.
As a legal standoff begins, no one is able to decipher what’s really at stake for Elon Musk. Will he still buy Twitter but force the price down? Did he change his mind when he realized too late that his room for maneuver to make money on the social network and restore his “freedom of speech” has been reduced? Worse, did Elon Musk really want to buy Twitter in the first place? Is it just a Machiavellian game for him, the billionaire who wants to break his favorite toy – which he has always had a hate / love relationship with – by destroying the social network’s reputation, by sowing doubt among investors about its ability to survive, while promoting its own pro-Trump and libertarian political agenda?
“Never in economic history has a buying operation been seen to develop in this way. Everything is new: Elon Musk’s public attack in early April, his ultra-rapid capital increase, his way of forcing his hand on Twitter with a very advantageous takeover bid for shareholders. Even more unprecedented is the reversal of the future buyer as soon as he signed the contract: public attacks on management and its strategy, serious allegations of lies about the number of fake accounts, publication of a poo emoji in response to a thread from daily manager , until his cancellation of the sale. It is unheard of at all levels, ”says Asma Mhalla, professor at Science Po, a specialist in computer economics and an expert affiliated with the European Research Executive Agency.
Twitter right in his boots
From the start, Twitter has shown calm and rationality in the face of Elon Musk’s provocations. Very well advised by his army of lawyers, the social network did not allow itself to be destabilized by the speed of the attack: the contract signed at the end of April is extremely solid. ” The contract is binding on both parties, the initial conditions are very limited “, Judge Emmanuel Perais, lawyer specializing in mergers / acquisitions at Linklaters. ” Elon Musk can not get out of the contract. ” unless it happened “events that endanger the economy of acquisition”, for his part, suggests Karl Hepp de Sevelinges, associate at Jeantet, also an M&A specialist. While he specified that even if this exit clause for Musk were activated, it would not prevent the billionaire from paying a $ 1 billion fine.
Twitter even added a specific clause related to Elon Musk’s personality, which protects the operation if the social network is in any way affected by the comments from Elon Musk. ” That was fine by Twitter, as it protects the social network from Musk’s communication maneuvers to destabilize the company and then conclude that he can no longer buy it. “, Assesses Pierre-Emmanuel Perais.
With this particular contract, Twitter is not shaking. On Monday, July 11, the social network in a new letter to the SEC – the policeman in the financial markets – assessed that the cancellation of Elon Musk’s takeover is ” invalid and unjustified “Bluebird accuses Musk of having.” knowingly, intentionally, intentionally and materially violated the agreement and invokes, among other provisions, the clause stating that Musk is prohibited from setting up Twitter or its employees.
Also read How Twitter is trying to force Elon Musk to pay a high price for the takeover
Scenario 1 – Musk no longer wants to buy
Twitter is also right in the boots regarding the official reason for Musk’s withdrawal: The dispute over the number of fake accounts. Twitter has for years estimated that they weigh less than 5% of users, but Elon Musk accuses it of lying to the stock exchange authority. The contractor believes, without providing any evidence, that there would be ” at least 20% »Fake accounts.
To end the debate, Twitter announced in early June that it was giving Musk access to all 500 million tweets posted daily on the platform, to allow him to measure the number of fake accounts for himself. But Elon Musk believes that this is not enough, referring to the need to also access metadata associated with accounts (identifiers, IP addresses, etc.) He also mentions the recent layoffs of employees and the freezing of recruitment, in as opposed to his obligation for the company to continue to operate normally.
But while many legal scholars believe Elon Musk’s arguments are flawed, that does not mean Twitter will win the battle in court. ” In the USA, litigation in connection with mergers / acquisitions most often results in a financial agreement “, Explains Etienne Drouard, a specialist lawyer at the law firm Hogan Lovells.
The expert does not believe much in the hypothesis of forced redemption for the starting price:
“If we take the case from the beginning, only the market was enthusiastic about the prospect of the takeover. Musk, on the other hand, kept criticizing the company he said he would buy before rejecting the bride. Which investor would trust a business run by someone who does not want it and was forced to buy it out? he wonders.
Especially when Elon Musk, by attacking Twitter from fake accounts, rushes into a gray zone. ” This is not trivial, because there is no consensus on the method of measuring the number of fake accounts, and the daily manager of Twitter even admits this weakness. There is, therefore, a breach that benefits Musk in his political and media coup against this network, which he accuses of being partisan. And even if he loses after months of strife and has to pay a billion dollars in fines or even more, it is not so much a problem for the richest man in the world. reminds La Tribune of researcher Asma Mhalla.
Scenario 2 – Musk will lower the price
The transactional result therefore appears to be preferred by experts: either to cancel the purchase in exchange for fines paid by Elon Musk, or to continue the takeover, but at a much lower price.
“In similar mergers / acquisition situations, the out-of-court negotiations, which take place in parallel with the course of the trial, lead to a renegotiation of the price, as happened in the case of LVMH’s acquisition of Tiffany”, explains Pierre-Emmanuel Perais, lawyer specializing in mergers / acquisition, to La Tribune.
Announced in November 2019, the engagement between Tiffany and LVMH, the world leader in luxury, had been broken in September 2020 due to the economic crisis caused by Covid-19. The two groups then agreed a month later on a price that was revised down to $ 131.50 per. share, against the previous 135.
Thanks to the vigilance surrounding the measurement of counterfeit accounts, Elon Musk was able to obtain from the court a discount on the purchase price, set at $ 44 billion in mid-April, before the worsening of the fall in technology stocks in the markets due to economic downturn. Today, the Twitter share is at $ 32.65, or 40% less than what the entrepreneur offered when he announced his intention to get his fingers on Twitter in April.
Twitter is losing both ways
Whatever happens, both sides will leave feathers in the conflict. Elon Musk, whose strategy no one understands, will have shown his unpredictability, his aggressiveness and even his childishness (the poo emoji to respond to a thread from Twitter’s CEO, Parag Agrawal) in broad daylight. The claim of radical political views – support for the candidate for the most conservative branch of the Republican Party, aggressive flights against the Democrats – is also worrying. The American press has already reiterated tensions at Tesla and SpaceX linked to the image, which Elon Musk returned in the Twitter file. ” Musk’s reputation as a serious counterpart to future trades could be damaged “, Notes Pierre-Emmanuel Perais.
But the big loser will definitely be Twitter. If the deal is canceled, Musk’s attacks on its business model, strategy and management will leave its mark. Investors are likely to look at the platform with suspicion: If even the ingenious Elon Musk gives up when he is known for his nose and his entrepreneurial successes, can Twitter really become permanently profitable?
Analysts from the rating agency S&P Global Ratings note that in all cases, including the possibility of a purchase for the price or at a reduced price, the harmful spectacle that has been running for three months. increases uncertainty and reputational risks “ from Twitter. Especially since Elon Musk still has not presented a credible business model for the platform. To make matters worse, the difficult macroeconomic context (likely recession, inflation, geopolitical tensions) ” significantly affect ad revenue from Twitter, which accounts for about 90% of its revenue.