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Elon Musk to go ahead with Twitter buy after all. Maybe

The world’s richest man Elon Musk has confirmed he will proceed with his deal to buy social media platform Twitter.

October 5, 2022
By Tom Krisher, Tom O'Brien and Randall Chase
5 October 2022

The tumultuous saga of Elon Musk’s on-again off-again purchase of Twitter took a turn toward a conclusion Tuesday after the mercurial Tesla CEO proposed to buy the company at the originally agreed-on price of $44 billion.

Elon Musk says he’ll proceed with his $44 billion deal to buy the company after months of legal battles. (AP Photo/Gregory Bull, File)

Musk made the surprising turnaround not on Twitter, as has been his custom, but in a letter to Twitter that the company disclosed in a filing Tuesday with the US Securities and Exchange Commission. It came less than two weeks before a trial between the two parties is scheduled to start in Delaware.

Twitter’s response

In response, Twitter said it intends to close the transaction at $54.20 per share after receiving the letter from Musk. But the company stopped short of saying it’s dropping its lawsuit against the billionaire Tesla CEO. Experts said that makes sense given the contentious relationship and lack of trust between the two parties.

The filing says he’ll complete deal as long as he gets debt financing and provided that the court gets rid of the lawsuit.

A letter from Musk’s lawyer dated Monday and disclosed by Twitter in a securities filing said Musk would close the merger signed in April, provided that the Delaware Chancery Court “enter an immediate stay” of Twitter’s lawsuit against him and adjourn the trial scheduled to start Oct. 17.

Trading in Twitter’s stock, which had been halted for much of the day pending release of the news, resumed trading late Tuesday and soared 22% to close at $52.

By going through with the deal, Musk essentially gave Twitter what it was seeking from the court – “specific performance” of the contract with Musk, meaning he would have to go through with the purchase at the original price. The contract Musk signed also has a $1 billion breakup fee.

What the experts say

Even if the deal now goes through without a hitch, it’s too soon to call a victory for Twitter, said Jasmine Enberg, an analyst with Insider Intelligence.

“The deal will solve some of the short-term uncertainty at the company, but Twitter is essentially in the same place it was in April,” she said.

“There is still plenty of uncertainty around what Musk intends to do with Twitter, as well as the future of a company with a leader who has wavered in his commitment to buying it. And if we’ve learned anything from this saga, it’s that Musk is unpredictable and that it isn’t over yet.”

Billionaire and Tesla CEO Elon Musk. (AP)

Andrew Jennings, professor at Brooklyn Law School, noted Twitter may also be worried about Musk’s proposal being a delay tactic. After all, he’s already tried to unsuccessfully postpone the trial twice.

“I don’t think Twitter will give up its trial date on just Musk’s word – it’s going to need more certainty about closing,” Jennings said.

Most legal experts believe Musk faced an uphill battle to convince Chancellor Kathaleen St Jude McCormick, the court’s head judge, that something changed since the April merger agreement that justifies terminating the deal.

The Musk-Twitter deal fallout was due to be hear in the Court of Chancery in Wilmington, Delaware, housed in the Leonard L. Williams Justice Center housing. (AP Photo/Matt Rourke)

Legal experts said Musk may have anticipated that he would lose. Things haven’t been going well for him in court recently, with the judge ruling more frequently in Twitter’s favor on evidentiary matters, said Ann Lipton, an associate law professor at Tulane University. The judge’s denied several of Musk’s discovery requests, Lipton said.

While some logistical and legal hurdles remain, Musk could be in charge of Twitter in a matter of days – however long it takes him and his co-investors to line up the cash, said Ann Lipton, an associate law professor at Tulane University.

Eric Talley, a law professor at Columbia University, said he’s not surprised by Musk’s turnaround, especially ahead of a scheduled deposition of Musk by Twitter attorneys starting on Thursday that was “not going to be pleasant.”

“On the legal merits, his case didn’t look that strong,” Talley said. “It kind of seemed like a pretty simple buyer’s remorse case.”

If Musk were to lose the trial, the judge could not only force him to close the deal but also impose interest payments that would have increased its cost, Talley said.

What did surprise Talley is that Musk doesn’t appear to be trying to renegotiate the deal. Even a modest price reduction might have given Musk a “moral victory” and the ability to say he got something out of the protracted dispute, Talley said.

Market reaction

News of the renewed offer caused trading of Twitter stock to be halted much of Tuesday afternoon on the New York Stock Exchange for “news pending” after it jumped nearly 13% to $47.93.

Trading in shares of Twitter was halted after the stock spiked on reports that Elon Musk would proceed with his $44 billion deal to buy the company. (AP Photo/Seth Wenig)

That’s still well below the price of $54.20 in Musk’s original offer. Trading halts are how stock exchanges give investors a forced timeout when trading for a stock gets too chaotic, or when a company is about to offer market-moving news.

Anatomy of a deal

Musk’s proposal is the latest twist in a high-profile saga involving the world’s richest man and one of the most influential social media platforms.

Much of the drama has played out on Twitter itself, with Musk – who has more than 100 million followers – lamenting that the company was failing to live up to its potential as a platform for free speech and had too many bots.

The Twitter headquarters in San Francisco. (AP Photo/Jed Jacobsohn, File)

Musk had been trying to back out of the deal for several months after signing on to buy the San Francisco company in April. Shareholders have already approved the sale, and legal experts say Musk faced a huge challenge to defend against Twitter’s lawsuit, which was filed in July.

Musk claimed that Twitter under-counted the number of fake accounts on its platform, and Twitter sued when Musk announced the deal was off.

Musk’s argument largely rested on the allegation that Twitter misrepresented how it measures the magnitude of “spam bot” accounts that are useless to advertisers.

It’s also possible that Musk’s co-investors in the deal were starting to get nervous about how the case was proceeding, she said.

Musk’s main argument for terminating the deal – that Twitter was misrepresenting how it measured its “spam bot” problem – also didn’t appear to be going well as Twitter had been working to pick apart Musk’s attempts to get third-party data scientists to bolster his concerns.

Elon Musk has offered to buy Twitter for a second time, the company has confirmed. (Brian Lawless/PA)

Twitter now has options in the case and doesn’t necessarily have to accept a new offer from Musk, said Robert Anderson, a law professor at Pepperdine University.

“Twitter could still be concerned that the same thing might happen again without some additional security,” Anderson said. “They’re going to want some assurance that the deal is going to happen right away.”

Columbia’s Talley said he would insist on Musk putting money into an escrow account until the deal is completed. Such an account could hold cash and/or Twitter shares, as a good-faith demonstration by Musk, Talley suggested.

Many of Musk’s tweets in the past 24 hours have been about a divisive proposal to end Russia’s invasion of Ukraine, drawing the ire of Ukrainian President Volodymyr Zelenskyy.

Musk argued in a tweet Monday that to reach peace Russia should be allowed to keep the Crimea Peninsula that it seized in 2014. He also said Ukraine should adopt a neutral status, dropping a bid to join NATO following Russia’s partial mobilization of reservists.

Musk remained mum about the turn of events on Twitter until late Tuesday afternoon, when he tweeted that “Buying Twitter is an accelerant to creating X, the everything app” without further explanation.

Many of Musk’s other tweets in the past 24 hours have been about a divisive proposal to end Russia’s invasion of Ukraine, drawing the ire of Ukrainian President Volodymyr Zelenskyy.

Even if the deal now goes through without a hitch, it’s too soon to call a victory for Twitter, said Jasmine Enberg, an analyst with Insider Intelligence.

“The deal will solve some of the short-term uncertainty at the company, but Twitter is essentially in the same place it was in April,” she said. “There is still plenty of uncertainty around what Musk intends to do with Twitter, as well as the future of a company with a leader who has wavered in his commitment to buying it. And if we’ve learned anything from this saga, it’s that Musk is unpredictable and that it isn’t over yet.”

What could happen next

If the deal does go through, Musk may be stuck with a company he damaged with repeated statements denouncing fake accounts, Susannah Streeter, senior markets analyst for Hargreaves Lansdown in the United Kingdom, wrote in an investor note.

FILE PHOTO: Illustration shows Elon Musk's Twitter profile on smartphone and printed Twitter logosReuters
Elon Musk’s takeover of Twitter has taken another twist. (Dado Ruvic/Reuters/Illustration)

“This is an important metric considered to be key for future revenue streams via paid advertising or for subscriptions on the site, and his relentless scrutiny of Twitter’s figures over the last few months is likely to prompt questions from potential advertising partners,” she wrote.

Reports of the settlement surfaced just hours after attorneys for Musk filed a motion late on Monday night seeking sanctions against Twitter for allegedly instructing whistleblower Peiter “Mudge” Zatko in June to destroy evidence. In a proposed order, Musk attorneys, said “an adverse inference is drawn against plaintiff, that all destroyed evidence corroborates Mr Zatko’s testimony.”

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