Elon Musk has withdrawn from the takeover of Twitter, but what does he really risk?
Everyone accuses him of having had sweaty palms. After many convolutions, Elon Musk finally withdrew from the negotiations that linked him to Twitter for the takeover of the social network. Let’s take stock of the case and the various possible consequences.
Ups and downs for freedom of expression
First, let’s go back three months earlier. In April, the richest man in the world invested in Twitter to acquire 9.2% of the shares of the company, thus becoming its largest shareholder. This news obviously caused the share price to jump from 39 to more than 50 dollars. The real roller coaster then begins.
After this major equity investment, Parag Agrawal, the boss of Twitter invited Elon Musk to join his board of directors, which he first accepted… before finally withdrawing. And for good reason, since at that time he had another idea in mind: to completely buy out the social network to “unlock its extraordinary potentialand change the world by creating a place where freedom of expression would finally have no limits.
An offer hard to refuse
On April 14, the boss of Tesla and Space X therefore announced that he had made an offer of 44 billion dollars to buy the blue bird, i.e. a price of 54.20 dollars per share. An offer that is difficult for the company to refuse.
It only took a month for the tycoon to start doubting. Freedom of expression as he imagines it is very complicated to maintain: in many countries, the laws limit what it is possible to say. In France, for example, calls for hatred and racism (to quote only that) are strictly prohibited. Is this what prompted him to suspend his takeover on May 13? Not officially. Elon Musk then justifies himself by explaining to wait for more information concerning the rate of false accounts on the social network. Twitter announces less than 5%, its extremely wealthy buyer doubts. The Twitter action relapses to 37 dollars per unit, no shareholder believes in it.
What is Elon Musk’s risk?
The billionaire asked to verify if the number of fake accounts represented much less than 5% of the volume of Twitter followers, suggesting that he could use this information to lower his offer. Twitter provided him with the data in question, but on July 8, Elon Musk finally officially announced his withdrawal to financial authorities. The agreement is void.
Except that in a country where the right to abortion is no longer a fundamental freedom, the technique of withdrawal is dangerous, and this is also true in the business world. The deal had been officially filed with the relevant authorities and it contains a waiver clause. Either way, the party deciding not to go all the way will have to pay compensation for breach of contract to the tune of one billion dollars. But it’s not that simple.
The agreement specifies that this compensation will take place if Elon Musk is unable to raise the necessary funds for the takeover or if Twitter finds a new buyer or if its board of directors votes against the takeover offer. Twitter, through the voice of Bret Taylor, confirmed “plan to take legal action to enforce the merger agreement» and considers himself «convinced to win the case in the Delaware Court“.
The Twitter Board is committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plans to pursue legal action to enforce the merger agreement. We are confident we will prevail in the Delaware Court of Chancery.
—Bret Taylor (@btaylor) July 8, 2022
Still, it is not said that Elon Musk pays anything. If the Delaware Court finds that the richest man in the world is within his rights and that Twitter has “violated several provisions of the agreement with false and misleading statementsas Elon Musk asserts, it may even be the latter who could inflate his portfolio. Anyway, Elon Musk can always turn to the initial agreement if the case goes wrong in court and pay his billion in compensation. A drop of water for a man who weighs more than 230 billion dollars today.
For its part, Twitter suffers from the announcement. After a dramatic post-close drop that took TWTR stock back to $34, the price appears to be stabilizing around $35, down about 5%. For a company valued at nearly 30 billion dollars, this therefore represents… 1.5 billion. To see if the roller coaster continues in the coming weeks.
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