Money Rehab with Nicole Lapin - WTF is Going On with Elon Musk?

Episode Date: July 22, 2022

Elon Musk is at it again. This time, there’s a lawsuit involved. Nicole gets you up to speed on today’s episode.

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. Elon Musk is at it again.

This Twitter versus Elon debacle is the biggest drama in finance land right now that's turning the suits on Wall Street into gossipy teenagers. If you need a refresher on how Elon and Twitter went from BFFs to mortal enemies, here it is. In April of this year, Elon announced that he was going to buy Twitter at $54.20 a share, which would put it at a $44-ish billion sale. Over the month of May, Twitter's stock price, though, fell more than 12%. Analysts have said this decline was a mix of overall market downturn as well as confusion and mixed feelings over Elon's potential

ownership of the company. Then, last month, Musk said he was going to withdraw his bid for Twitter. He claimed that he asked Twitter to provide data on the prevalence of fake accounts and that they did not send him the information that he needed. And as a result, Twitter was in breach of the agreement. Well, in Elon's view anyway. But Twitter vehemently denied Elon's allegations and then added their own allegations to this pile of utter madness. The company stated it had, quote, bent over backwards to get Elon the data he wanted and that it was actually Elon who breached the terms of the agreement because he tweeted details about the deal that made the company look bad. Specifically, Musk tweeted a description of how Twitter evaluates fake accounts

that was false and painted Twitter as borderline shady. Elon tweeted that Twitter's sample size to study spam accounts was 100. Meaning, when Twitter publishes data on what percentage of the accounts on their platform are spam, they extrapolate trends from only 100 accounts. That would be an extremely low sample size, as Twitter reportedly has more than 450 million monthly active users. Using 100 accounts to make inferences for 450 million accounts is not right. And that's what many people thought when Elon shared that on Twitter. Plus, Musk also said that according to his own independent research, there's a chance that more than 90 percent of daily active users on Twitter are bots. That was alarming to many Musk fans because who wants to be on Twitter if it's mostly robots and fake accounts? But the thing is, Elon was wrong.

Twitter had sent Elon a description of how they evaluate bots and told him that they look at a random sample of 9,000 accounts per quarter, not 100. Big difference. In response, Musk said he hadn't read that report. Yikes. So as we know from our time in money rehab, public companies are very sensitive to public opinion. A company's stock price can be greatly affected by the kind of press they're getting. So it's clearly problematic for Twitter shareholders that Elon is tweeting to his 101.6 million followers, things that make the company sound sketchy. Okay, I have to pause for just one second and say the fact that Elon is using Twitter as a platform to talk about his deal with Twitter is so, so meta. But no, no, not the Facebook meta kind. I'm talking about literally meta. Musk is

using Twitter against itself, which is so ironic. I wouldn't believe it if I didn't see it playing out with my own two eyes in front of me. Okay, back to business. So here's where we're at now. Twitter is now suing Elon in Delaware to force him to go through with the deal and buy the company. In a particularly fiery section of the lawsuit, Twitter stated, quote, Musk refuses to honor his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests. Having mounted a public spectacle to put Twitter in play and having proposed and then signed a seller-friendly merger agreement, Musk apparently believes that he, unlike every other party subject to Delaware contract law,

is free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away. And since signing the merger agreement, Musk has repeatedly disparaged Twitter and the deal, creating business risk for Twitter and downward

pressure on its share price. Whew, end quote. In the lawsuit, Twitter argues that Musk's issue with the deal is not that he's missing data, which they argue is not true anyway, but that Musk's real issue with the deal is that the market has taken a downturn. And the Wall Street Journal notes that Musk's personal net worth has declined by more than $100 billion in this recent market downturn. And so the lawsuit argues, quote, rather than bear the cost of the market downturn as the merger agreement requires, Musk wants to shift it to Twitter's stockholders, end quote. So what is Twitter hoping to gain with this lawsuit? Well, potentially $44 billion and the sale they were promised. This wouldn't be the first time a company is legally forced to make good on an acquisition. The Wall Street Journal reminds us that Tyson Foods was forced to acquire Meatpacker IBP Inc. in 2001 after Tyson tried to back out of the deal. But some reporters, like the folks

at New York Mag, believe this lawsuit may just be Twitter kicking the can down the road to back Musk into a corner. This is a little fuzzy now with the lawsuit, but originally the terms of their agreement were that either party had until October 24th of 2022 to terminate the agreement. had until October 24th of 2022 to terminate the agreement. So some have speculated that this lawsuit is just Twitter running out the clock until Musk has no more time to terminate the agreement. But even if Musk is allowed to abandon the deal, he's still likely going to have to pay a fee for terminating the deal. And what is that fee for terminating the deal? One billion dollars. For today's tip, you can take straight to the bank. Here's the ruling I would give if I were the judge in Delaware. Frankly, I'm on Twitter's side. Twitter did give Musk huge access to their data. In fact,

Twitter gave Musk more than 49 trillion bytes of data. That is a huge look behind the curtain. It really does seem to me that Musk is just trying to get out of a deal that he didn't think through completely. And his decision to terminate the agreement comes from feelings of entitlement in being the richest man in the world. And as the richest man in the world, Elon Musk will be okay. But the Twitter employees, the folks who are getting laid off because of the whims of one erratic man are not. So I'm on their side and I want the outcome that's best for their sake. That's my verdict. Money Rehab is a production of iHeartRadio. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Mike Coscarelli. Executive producers are Nikki Etor and Will Pearson.

Our mascots are Penny and Mimsy. Huge thanks to OG Money Rehab team, Michelle Lanz for her development work, Catherine Law for her production and writing magic, and Brandon Dickert for his editing, engineering, and sound designert for his editing, engineering and sound design. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.