Posted: June 14, 2022
Here’s a general rule of thumb: if a news story involves Elon Musk, expect it to turn on a dime. In some cases, the story shifts because of something as simple as one of Elon’s tweets. It should be no surprise, then, that the story of Elon buying Twitter is no different. It has been several weeks since Elon first mentioned buying Twitter. But, he still hasn’t officially bought it. Let’s examine exactly what’s going on. Recap of Elon’s Twitter deal Elon has always been a big fan of tweeting. In many cases, his tweets have landed him in hot water with the SEC and other regulating bodies. But, more recently, he’s shown more of an interest in Twitter as a company. For example, he has declared Twitter as “the public square of the day”. In his eyes, Twitter yields a tremendous amount of influence. For this reason, it wasn’t a huge surprise when he started buying up shares of Twitter. At first, his plan was to buy up a majority stake in the company and serve on the board. But, he quickly learned that this comes with a lot of responsibility and red tape. That’s not quite Elon’s style. Instead, being the richest man on Earth, he decided to just buy all of Twitter’s outstanding shares. Elon’s original offer was to buy Twitter for $44 billion, or $54.20 per share. Yes, Elon slipped a subtle 4/20 nod into his Twitter acquisition bid. So, what happened? Where does it stand? Most recently, Elon seems to have gotten cold feet. He has not technically backed out of the deal. However, he is suddenly very concerned that Twitter might have a serious problem with bots. If most of Twitter’s users are actually bots, it will impact his ability to make the service profitable. Now, he wants to run tests to determine what percentage of Twitter’s users are bots. Nobody is saying that running this style of test is a bad idea. In fact, it’s a smart idea. It’s just that this process is called due diligence and it should normally be done before you make an offer to buy something. It’s like submitting a bid to buy a house, having the owner accept, and then backing out because you learn that the basement leaks. As the buyer, it’s your responsibility to check the basement for leaks before buying the house. Usually, the legality of backing out depends on the contract. In Elon’s case, even if he backs out he might still be on the hook to pay over $1 billion. Most people doubt that Elon is trying to get out of the deal. In reality, he just wants a better price. Twitter’s shares have tanked recently along with the broader stock market. As this was written, Twitter has a total market cap of just over $28 billion. This is significantly below Elon’s offer of $44 billion. Most likely, he’s just trying to stall the deal and raise complaints about bots in hopes of renegotiating for a lower price. To learn more about current events as they pertain to finance, economy, business and executive compensation, consider subscribing to the official Veritas newsletter: Compensation in Context.