Mr. Musk And The Merger

Elon Musk is a busy man. He makes cars, yes, but he also builds spaceships, and when he’s not doing either of those things, he digs tunnels, designs humanoid robots and pokes around in the brains of monkeys, only one of whom had to be euthanized.

You’d think leading the EV revolution, planning trips to Mars, reimagining subterranean transport, cosplaying Ex Machina and enabling macaque monkeys to play Pong using only their minds would be enough for one person. But you’d be wrong. Or at least you’d be wrong if that person is Musk, who, among other other things, wants to run the world’s second-most annoying social media platform.

Nobody, including and especially Musk, knows whether Musk is serious about buying Twitter. The best we can do is speculate that he’s more or less serious depending on the day, which is generally true of all Musk’s ideas. What we’ve learned over the past two months, though, is that when you’re history’s richest person, there’s not much you can’t do if you really, really want to.

Despite near universal skepticism about his capacity to line up the financing, Musk got the deal done. Shortly thereafter, he put the deal “on hold” citing concerns about bots, fake accounts and spam. There were two issues. First, there is no “on hold.” That’s not, strictly speaking anyway, a thing. Second, the disclosure about the fake accounts in Twitter’s public filings has been there for years and Musk had every opportunity to discuss the issue with Twitter ahead of time. In addition, Musk could only walk away if the percentage of Twitter users comprised of fake or spam accounts was high enough (or, I guess, far enough above the 5% figure from the filings) to have a “Material Adverse Effect” on the company, a prospect one M&A attorney called “vanishingly unlikely.”

Subsequently, Musk engaged in a public war of words (on Twitter, of course) with CEO Parag Agrawal, leading many to conclude that he (Musk) was determined to force the company into accepting a lower offer. Despite what some experts say is a very strong legal case, Twitter has no good options in the event Musk tries to walk away. They may well conclude that the least bad idea in such a scenario is to sell the company to Musk at a lower price. Or maybe not, because notwithstanding Musk’s tweets, Twitter continued to insist that things were proceeding according to the terms of the agreement late last month, and the requisite antitrust waiting period expired last week.

That brings us to Monday, when Musk called Twitter’s offer to provide more details around the company’s methodologies for identifying and tabulating fake accounts “tantamount to refusing” his requests. Apparently, Musk wants lots of data, and Twitter, in a June 1 letter, offered only “written materials or verbal explanations.”

“Mr. Musk has made it clear that he does not believe the company’s lax testing methodologies are adequate so he must conduct his own analysis,” his law firm said, adding that,

Twitter’s obligations to provide Mr. Musk with information is not, as the company’s June 1 letter suggests, limited to a “very specific purpose: facilitating the closing of the transaction.” To the contrary, Mr. Musk is entitled to seek, and Twitter is obligated to provide, information and data for, inter alia, “any reasonable business purpose related to the consummation of the transaction” (Section 6.4). Twitter must also provide reasonable cooperation in connection with Mr. Musk’s efforts to secure the debt financing necessary to consummate the transaction, including by providing information “reasonably requested” by Mr. Musk (Section 6.11). Mr. Musk’s requests for user data not only satisfies both criteria, but also meets even Twitter’s narrowed interpretation of the merger agreement, as this information is necessary to facilitate the closing of the transaction.

That wasn’t the end of it. Musk’s attorneys went on to explain why he’s entitled to the requested information, but said that ultimately, no such explanation is required, nor does he need to “submit to the new conditions the company has attempted to impose on his contractual right” to the data.

The shares fell more than 2% Monday, to trade around 28% below the deal price (figure below).

“The shares have barely — and only briefly — surpassed $50 since Musk sprung his buyout plan on April 14,” Bloomberg remarked, on the way to dryly noting that “the deal came together at breakneck speed in part because Musk waived the chance to look at Twitter’s finances beyond what was publicly available.”

Musk, his lawyers wrote Monday, “believes Twitter is transparently refusing to comply with its obligations under the merger agreement” and that’s “causing further suspicion that the company is withholding the requested data due to concern for what Mr. Musk’s own analysis of that data will uncover.”

Regular readers may recall my assessment from a May 17 article, in which I wrote that, “to some observers, Musk’s tactics may appear to resemble those employed by conspiracy theorists.” I continued: “The playbook for conspiracy narratives is simple enough. Posit a conspiracy, then claim that failure to disprove it is itself proof that it’s real.”

That was three weeks ago. Now here we are.

Last week, Musk made front-page headlines twice. First for demanding Tesla employees “spend a minimum of 40 hours in the office per week,” then for an email in which he told company executives that he harbors a “super bad feeling” about the prospects for the economy. Subsequently, Musk sought to offset language which suggested Tesla’s headcount might fall by claiming that in fact, it may rise.

The financial media will spend an inordinate amount of time this week attempting to discern whether Musk’s economic outlook is related to his contention that Twitter is wittingly depriving him of data he’s entitled to thereby giving him an option to walk away from the deal. In other words: Some will speculate Musk doesn’t want to buy Twitter at a time when, by his own account, he believes the economy is either in a recession or about to be in one. Others will just say he’s angling to get a better price.

As ever, I’m not sure there’s much utility in breathless speculation. All we can say for sure is that Musk is now pressing the fake account issue harder than ever. If you thought that was a red herring before, you’ll be even more convinced now. If, on the other hand, you’re like me, you’ll be inclined to emit a fatalistic sigh on the way to noting, again, that when you’re the richest person in the history of the world, you’re free to say and do as you please with regard to substantially anything and everything.

“Mr. Musk believes [Twitter] is actively resisting and thwarting his information rights,” his lawyers went on to say Monday, calling that “a clear material breach of Twitter’s obligations” and noting that Musk “reserves all rights resulting therefrom, including his right not to consummate the transaction and his right to terminate the merger agreement.”


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6 thoughts on “Mr. Musk And The Merger

  1. If you ask me (and no one has), there is an easier way to understand Musk.
    I pulled this list of signs and symptoms straight from Wki/mania

    Inflated self-esteem or grandiosity.
    Decreased need for sleep (e.g., feels rested after 3 hours of sleep).
    More talkative than usual, or acts pressured to keep talking.
    Flights of ideas or subjective experience that thoughts are racing.
    Increase in goal-directed activity, or psychomotor acceleration.
    Distractibility (too easily drawn to unimportant or irrelevant external stimuli).
    Excessive involvement in activities with a high likelihood of painful consequences.(e.g., extravagant shopping, improbable commercial schemes, hypersexuality)

    1. Eddie, another simple way to view it: Dorky kid who got bullied around now gets his chance to be the bully. Not sure if you have kids, but reference the antagonist named Vector in the movie “Despicable Me”.

  2. Coming soon … Hillary conspiracy connection to Twitter…oh, to be a god…

    Wealth tax please.
    Space tax please.
    For the planet…

  3. Musk is probably just trying to own something else for when cryptos and tesla crash… to maintain his relevance.

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