The Daily - Can Elon Musk Get Out of Buying Twitter?

Episode Date: July 12, 2022

Last week, Elon Musk announced that he was pulling out of his $44 billion agreement to purchase Twitter. Today, we explore why a company that once tried to fend off this acquisition is now trying to force Mr. Musk to buy it.Guest: Kate Conger, a technology reporter for The New York Times.Want more from The Daily? For one big idea on the news each week from our team, subscribe to our newsletter. Background reading: Why Mr. Musk is leaving Twitter worse off than it was when he said he would buy it.For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday. 

From The New York Times, I'm Astead Herndon. This is The Daily. Last week, Elon Musk announced that he was pulling out of his $44 billion agreement to purchase Twitter. My colleague, Kate Conger, on why a company that once tried to fend off this acquisition is now trying to force Elon Musk to buy it. It's Tuesday, July 12th. Kate, so the last time we covered Twitter and Elon Musk was way back in April.

And there had been this long back and forth between the world's richest man and the social media company that holds such a huge portion of our public discourse in its hands. The question everyone was asking at that time was just, is Elon Musk going to buy Twitter? But it seems like he's saying at this point, actually, thanks, but no thanks. So, Kate, what's happening between these two? Right. So at the time that Elon made an offer to buy Twitter, everyone was questioning whether or not he was serious, whether it might be a joke. And then Elon came to Twitter with an offer of $54.20 per share. He had to get the 420 joke in there. That comes out to about $44 billion. The price that he was offering was a little bit higher than Twitter's share price. So,

you know, it was an interesting offer. It was also a very bare bones offer. I mean, the letter that he wrote to Twitter was maybe five sentences long. He didn't have a lot to say. He just said, this is how much I'm willing to pay, take it or leave it. And Twitter at the time wasn't for sale. They weren't out looking for a buyer or trying to find someone to take over the company. He just approached out of the blue and said, hey, I'd like to buy your company. And now, arguably, the biggest visionary of them all, Elon Musk.

He went on to do a TED Talk later that day where he kind of laid out his plans for what he wanted to do at Twitter. So, Elon, a few hours ago, you made an offer to buy Twitter. Why? How'd you know? So he talked a lot about Twitter's potential as a platform for civic discourse. Twitter has become kind of the de facto town square. So it's just really important that people have both the reality and the perception that they're able to speak freely within the bounds of the law.

And wanting to allow more types of content to flow on the platform. My strong intuitive sense is that having a public platform that is maximally trusted and broadly inclusive is extremely important to the future of civilization. Elon has been really critical for a while about Twitter's content moderation policies. He says they take down too many kinds of content. I do think that we want to be just very reluctant to delete things, just be very cautious with permanent bans. They're too restrictive about what you can say.

They ban too many people and they need to stop. If in doubt, let the speech, let it exist. So he says this content moderation issue is really key. You know, if it's a gray area, I would say let the tweet exist. And when he takes over Twitter, he plans to roll back all of their content moderation policies and allow anything to flow on the platform as long as it's not illegal. It's damn annoying when someone you don't like says something you don't like. That is a sign of a healthy, functioning, free speech situation. Good luck with finding a wise course through on Twitter and everything else.

So on one hand, you have a very bare bones five sentence offer without much detail. But you also have these kind of statements, a TED talk from the world's richest man saying what he wants to do with the platform he is seeking to purchase. What was the reaction inside Twitter? The reaction inside Twitter was shock and confusion and rebellion almost at what he was proposing. You know, Twitter has had a very long history of allowing all types of speech to flow, and they've gotten in a lot of trouble for that. They've been ground zero for harassment campaigns and abuse and misinformation about elections and COVID. And they have worked really, really hard for a long time to clean up the platform. And so the idea that they should just go back to square one and scrap all of it

was kind of offensive to a lot of people who work on this issue. But the board does have to take this offer and seriously consider it. You know, their shareholders are all sitting on something that's worth $50. and here's someone coming along saying they'll pay $54. And if you ask any person on the street, would you prefer to have $50 or $54? Probably take the 54. So they do have to sit down and consider this offer. And so the board goes and shops around just to see if they could find someone else to come in and buy the company who's maybe a little bit more stable, maybe doesn't make pronouncements about the product at midnight on Twitter. And Elon Musk is working on lining up the financing for his deal and making sure that

he actually has the money to make this deal go through at the price that he's agreed to. Elon Musk now officially has the money to buy Twitter. In a new SEC filing, the billionaire revealed he secured a total of $46.5 billion to fund his takeover offer. So he gets all of that financing in place and Twitter ends up coming up short. They shopped around, they didn't get any other offers. So then they're kind of in this position where this is the only offer they have on the table. It's a good enough offer to take seriously and they're sort of in this position where this is the only offer they have on the table. It's a good enough offer to take seriously.

And they're sort of painted into accepting it. The deal is done. Twitter is set to agree to sell the platform to Elon Musk. After the platform's board accepted his $44 billion bid. And so just 10 days after Elon Musk's initial offer, Twitter accepts the deal. So you would think that the story should be over, yes? That everyone goes home and Elon Musk now owns Twitter. But as we know, that is not actually what happened.

So how did this deal fall apart? So over the last couple of months, a few things start to shift. First, the stock market, and in particular, the tech stock market starts to crash. So for tech, this is a really rough time. All of these companies rely on advertising and Twitter is especially dependent on advertising. But Twitter is also this place where the news happens, right? So the big topic right now on Twitter is the war in Ukraine. And advertisers are a little hesitant to put an ad for their brand next to a news story about a massacre in Ukraine or next to a photo of a bombing.

They don't want that to be the association with their brand. So they're kind of pulling back on advertising. And that's really impacting Twitter as well as other advertising-based tech companies like Facebook, Snapchat, etc. So we see Twitter's stock start to fall, and that impacts how good this deal looks for Elon, because whereas before it seemed like he had made, you know, a reasonable to low ball offer, now the stock is so low that it looks like he is overpaying for Twitter by paying 54.20 a share, that it looks like he is overpaying for Twitter by paying $54.20 a share, and that he's actually spending more than he probably should to buy this company.

There's also some interesting things going on in the Tesla stock at this time, which is Elon Musk's primary source of his wealth. And part of that is a result of the Twitter deal. Elon has to finance this deal. And part of the way that he's doing that is selling some of his Tesla stock so that he can get that money in cash. Him selling off a big chunk of the stock is driving down the price. So Elon Musk is also getting less and less wealthy and has, I mean, he's still the wealthiest man in the world. He's not suffering. A single tear has fallen from my eye.

Right. But, you know, he's getting less wealthy and it's starting to be maybe a little bit more painful for him to spend billions of dollars of his own money on this social media company. So as both Musk and Twitter's financial positions change, how does that impact the way the deal develops? So all these changes are happening in the market. And at the same time, Elon Musk returns to this old complaint that he's had about Twitter for a long time. And that's spam bots or fake accounts. A bot is just an automated account that tweets for itself without a human sitting behind the keyboard.

A top priority I would have is eliminating the spam and scam bots. The bots are a problem for Elon. They make the product much worse. He gets a lot of them in his own replies on Twitter, and he doesn't like that. If you look in the replies of his tweets... If I had a Dogecoin for every crypto scam I saw... There are a bunch of like crypto scams and bots and just weird replies that pop up instantly. The second that he tweets,

there's a bunch of these scams in his replies. And he also thinks that having all these bots on Twitter makes it less valuable. Twitter says less than 5% of the active users on the platform are bots or fake accounts. And they say they do all of this active users on the platform are bots or fake accounts. And they say they do all of this work to scrub the platform, take those things down. So they say that they're working really hard on this. But Elon Musk tweeting over the weekend about Twitter, predicting that the number of robots on Twitter is much worse than people know. Elon Musk says there's way more bots on the platform

than Twitter is admitting to. The Tesla CEO accused the social media platform of not providing enough data on automated bot accounts. If what Elon is saying is true, and I want to be clear, he's not provided any evidence that it is, but if what he's saying is true and that there are many more bots and fake accounts on Twitter than the company is admitting to, that's a problem for the value of the company because the company is an advertising business. So if you're telling all these advertisers, we're going to take your ad and we're going to put it in front of millions of people, and a lot of those people are actually fake, they're robots, and they don't have wallets, they're not going to spend money on your products. You're kind of getting ripped off as an advertiser. And so that's what Elon is hammering on. He's saying there's way too many bots and that makes this company less valuable than what I agreed to pay for it. So the bots have a real dual importance, it seems.

One, it's just annoying to have a whole bunch of bots responding to your tweets. And then also, as Twitter is seeking to make money from advertisers, it questions whether who those advertisers are selling to are in fact real people who would purchase products. Right, exactly. So it's annoying to him. And it's also probably financially damaging to the company if there are more bots than they're willing to admit. So Elon's lawyers start sending letters to Twitter saying, you know, we need more information to understand how you are counting the bots and arriving at this 5% figure. Twitter says, okay, they send us more information. His lawyers say they want more information.

Twitter ends up giving Elon access to what they call their fire hose. So it's the full volume of all of the tweets that are flowing on the platform every day so that he can do his own data analysis and look and see what he thinks the number of bots are. Elon says that's still not enough. And so last week, Elon Musk, his lawyer, has just sent a letter to Twitter. He wrote to Twitter and said, you know what? Extraordinary U-turn from the billionaire Elon Musk. You've given me the runaround on these bots and I'm going to walk away from the deal.

He's saying he looked at the product after he bought it and said, hey, this wasn't the product that you sold me. It's something different. So with the bots as his justification, Elon Musk does a complete 180 and pulls out of the deal that he frankly forced Twitter to take seriously. Yeah, so that's exactly right. Now that the deal is done and finalized, Elon Musk is saying that he's going to walk away. The question for Twitter is what are they going to do about it? And that is about to get really messy. We'll be right back. So, Kate, Elon Musk signs a binding contract to buy Twitter, and now he says he's pulling out. Is that something you can actually do? I personally was unaware that was an option.

Well, we're about to find out. So Twitter has said that they are going to sue Elon Musk now to try to force him to stick with the deal. So they're going to sue him in a court in Delaware. It's called Delaware Chancery Court. And this court specializes in handling disputes over mergers and acquisitions. So it's a little bit different than a normal court. The judges have specialized expertise in this area, and it's up to them. There's no jury trial here. and it's up to them. There's no jury trial here. The secret Supreme Court of Mergers and Acquisitions in Delaware. I cannot say I've heard of it before. Well, it helps prevent people with no special knowledge of mergers and acquisitions from having to make these really complicated decisions about how these deals should play out. So what are the possible outcomes here? What might this court decide?

There's three main possibilities. One is that Twitter could go to court and force Elon to buy the company at the price that he agreed to. The second option is that Musk and Twitter could sit down and renegotiate and come to a lower price for Twitter. And the third is that Elon could be allowed to walk away from the deal and pay some sort of breakup fee in order to exit. So let's break these down one by one. And let's start with that initial scenario that you laid out, where Musk is forced to stick with his original offer of roughly $44 billion. Right. Now, in favor of this option, right, is that it's just enforcing the rule of law. He signed the deal. He agreed to it. He doesn't have any real reason to weasel out of it. And so the

court is going to try to push this matter forward and send a message to other acquirers that they can't just drop deals when they get bored or they don't like it anymore. The problem with forcing Elon to go through with the deal is that then the court actually has to make him do that. And it's kind of tricky to make Elon Musk do anything. And so there's some speculation that a court might not want to try to force Elon to do this, that a court might not want to try to force Elon to do this, and they might prefer the negotiation option. And other acquirers have done this in the past where they said, you know what, never mind, I'm done. I don't want to buy this company anymore. And it's really just sort of a negotiation tactic to start talking about lowering the price. So that could happen here. Twitter and Elon could

sit back down and say, you know what, $44 billion feels a little rich at this point. Why don't we take some money off of the price? And he could end up buying it for a lower price. So what is option number three? Is there a world where Musk doesn't end up owning Twitter? Yes. So it is possible that this could all end with Elon Musk walking away. His deal with Twitter allows him to exit if there are very specific things that happen, such as if his funding were to fall through and the banks that are financing this deal, something happened, they couldn't finance it anymore. He would be able to walk away. And in that case, he has to pay $1 billion to walk away. Even if those things happen, he has to pay $1 billion? Yes. Even if the financing falls apart,

he still has to pay $1 billion just for the trouble of it all. So where does this all leave Twitter in this moment? Twitter is now in a pretty bad spot. So where does this all leave Twitter in this moment? Twitter's now in a pretty bad spot. The idea of being owned by Elon Musk is both essential and pretty unpleasant. From a financial perspective, they have to go through with this deal. Their share price is so much lower now that it has become really, really important for them to close this deal at this price. So they must continue. But, you know,

now they're facing having an owner who has critiqued the platform, has said he doesn't even want to own the company anymore, has said they're doing just about everything wrong. And so from an employment perspective, a large part of Twitter's employee base is really demoralized and really unhappy with the way that this situation is going. And some of them are kind of looking for the exits at this point. And the platform is also kind of suffering now. Elon has really put it out into the public consciousness that this isn't really a platform you can trust. There's a lot of bots. There's a lot of spam. You don't know if the people who you're talking to on Twitter are real. And we're headed into major elections in Brazil and in the United States.

And it sort of brings up this specter again of the 2016 election and the interference that happened there and makes people a little more cautious in the way that they engage with the platform. He's also raised this specter of fake accounts for advertisers. And so, you know, it's really kind of created a trust deficit for Twitter at a time where it needs its users and advertisers to believe in it and trust in it as a platform. I'm struck because that all comes after Must said himself that the reason he was interested in buying Twitter was because of what he described its vitalness to the public discourse. And so what you're describing is now a Twitter that's in a much worse position after the person who said it wanted to save and improve it came in and functionally destabilized it? Yeah, yeah, I think that's it. And, you know, you have someone who is looking at this platform and

saying, I can fix it, I can save it, and is now saying, actually, it's too messy. I don't want to fix it. I don't want to help. It's just puts Twitter in a tricky position. And I think it puts Elon in a tricky position, right? Because he is seen as this big innovator in technology. And is this the first problem that he's come across that he thinks he can't fix? You know, this is a guy who's saying he's going to move humanity to Mars, but he can't fix Twitter. Right. And there's always been this question around Twitter of whether or not it should even be a public company at all. Jack Dorsey, one of the co-founders, has talked about the fact that the ultimate purpose of Twitter is to serve the public-civic conversation, and that it is really hard to do that while also answering to

the whims of Wall Street and making sure that the revenue goes up every quarter, and that those things are kind of in tension with each other. And so, you know, what Elon Musk has done is maybe prove that point a little further and shown that it is really, really hard for a company that is a place where we're going to be talking about elections and talking about politics and talking about where we want to go in culture and society to be subject to the whims of the stock market and to be in this kind of public tug of war all the time. Well, thank you, Kate. I appreciate your time. Thank you so much.

We'll be right back. Here's what else you need to know today. A new poll from the New York Times shows President Biden is hemorrhaging support, even from those within his own party. The poll, released Monday in a partnership with Siena College, found that voters nationwide have soured on Biden's leadership, with only 33 percent giving him a positive job approval rating. Perhaps more alarmingly for the White House, 64 percent of Democratic voters say they would prefer a different Democratic candidate in the 2024 presidential campaign.

At 79, Biden is the oldest president in American history, and concerns about his age ranked at the top of the list for Democratic voters who want their party to find an alternative. The president has repeatedly said he intends to run for re-election. Today's episode was produced by Eric Krupke, Will Reed, Muj Zaydi, and Diana Nguyen. It was edited by Rachel Quester, with help from Mark George and Lisa Chow.

Contains original music by Marion Lozano, and was engineered by Chris Wood. Our theme music is by Jim Brumberg and Ben Landsberg of Wonderland. That's it for The Daily. I'm Ested Herndon. See y'all tomorrow.