As opposed to most corporate lawsuits, Twitter’s rundown of Elon Musk reneging on his deal to buy the social media giant is interesting reading. It’s more dime-store novel than mind-numbing legalese, which helped convince many journalists that Twitter has an airtight case on a somewhat complicated legal doctrine called “specific performance.”
Musk is the world’s richest man, also someone who thinks he can get away with anything. Crazy Elon relishes in defying securities regulators on settlements and brazenly attacking anyone who gets in his way (often on Twitter) without recourse.
Finally, he would be held accountable! He’ll have to go through with the his initial $44 billion purchase.
But after looking past the adjectives, and digesting the sometimes nasty details of Musk’s Twitter dance, I’m not so sure how this will end up other than providing a huge payday for all the lawyers involved.
First, there are no real good guys here.
Twitter is very popular, but controversy has surrounded the company since it went public in 2013. Its “woke” programmers relish stifling speech. For all its relevance, Twitter has long shafted shareholders. It often still loses money. Management has refused to make meaningful changes to its business model.
Enter Musk, corporate America’s best-known disruptor for making his electric vehicle company Tesla both profitable and a cultural icon.
As even Twitter’s own lawsuit points out, Elon came to the company with an offer it couldn’t refuse: a roadmap to make Twitter fair and financially successful (cutting expenses, getting rid of bots and making the platform more ad friendly). Plus he had a ton of cash no one else would put up.
‘Best and final offer’
Twitter’s lawsuit is on strongest ground when it shows just how erratic Musk can be. He’s no ordinary CEO surrounded by lawyers and advisers monitoring his every move. The lawsuit points out how he began by secretly and maybe illegally accumulating a significant stake in the company without giving the proper disclosures to the Securities and Exchange Commission.
When he initially spoke to the board about his investment, he acted like a friend looking to help current management as a board member. But that quickly changed. Unexpectedly, he hit them with demands to accept his “best and final offer” of $44 billion, waved due diligence, and threatened to go to war unless Twitter relented, the lawsuit shows.
Now, before you get all teary-eyed for Twitter, consider that management had no choice to play Musk’s game.
Bots might account for no more than 5% of all users, but they’re a huge and annoying problem. The cancel culture of its algorithms stifles thought and user growth.
Musk of course, got so rich via his stake in Tesla, which for years kept going up in price until Jerome Powell recently put the brakes on the speculative bubble he created. When Tesla shares started to reflect reality — for all its popularity and increasing profitability, its stock remains way overvalued by traditional metrics — the stock cratered along with Musk’s net worth by about $50 billion (he’s worth a mere $230 billion as this goes to press).
It then dawned on Musk that not only is Twitter a basket case, but his own cash was rapidly evaporating. Suddenly deal talks turned sour, the lawsuit shows in all its gory details, with Crazy Elon tweeting Twitter poop emojis about the company and accusations it was hiding stuff like the real number of fake accounts.
‘Model of hypocrisy’
On its face, such a claim appears outlandish and would amount to the corporate crime of the century since Twitter has for years publicly stated bots reflect a small percentage of all users.
No matter. A nasty letter to Twitter a week ago from Musk’s attorneys stated that he wanted out of the deal because Twitter was negotiating in bad faith over the fake accounts. Twitter’s lawyers characterized Musk’s charges as a “model of hypocrisy” since getting rid of the fake stuff was how he said he was going to make Twitter profitable.
Now this sordid spectacle is heading to the Delaware Chancery Court, the go-to venue to settle high-profile corporate claims.
Late Friday, Musk responded to Twitter, saying he was on firm ground to terminate the deal because the company’s bot disclosures could be false, thus violating the merger agreement. He said the court should deny Twitter’s bid to expedite the trial because proving this takes time.
“Given the players involved, you reporters will be having lots of fun,” one lawyer in the case told me. Think Johnny vs. Amber of business disputes — also with plenty of poop references.
Lawsuits are always difficult to predict but the Chancery Court tends not to take kindly to erratic, nonconformists like Musk. Twitter’s stock price has fallen amid the back-and-forth so shareholders appear to have suffered.
Or maybe not. All Musk really did during his nasty tweeting was expose the flaws in the company’s business — he might be exaggerating the number of fake accounts, but even Twitter would acknowledge they’re a problem. If anything, he provided a roadmap on how to save Twitter: Get rid of the fake accounts, stop stifling free speech that pisses off half of the country and control expenses.
Crazy Elon might just win again.