Twitter: The Albatross Around Tesla’s Neck
Great Ones, mark my words: Elon Musk is done with Twitter (NYSE: TWTR).
I mean, he’s been done for a while … but Elon was looking for a legal way out that didn’t leave him on the hook for billions. And when I say leave “him” on the hook, I mean personally on the hook for billions.
Why am I so sure?
Because instead of just tweeting about his dissatisfaction with his Twitter buyout — and we all know how Musk likes to tweet — this time, he done lawyered up.
In a letter to Twitter this morning, Elon Musk’s lawyer accused Twitter of “resisting and thwarting” Musk’s right to information on these fake accounts.
The letter stated that Twitter’s failure to disclose this information constitutes a “clear material breach” of the acquisition terms:
So you want to know how I know Musk is serious this time? Because he didn’t tweet about it and stuck to legal channels.
Now, would Elon still buy Twitter if the board panicked and decided to offer him a better deal at a price much lower than Musk’s meme-able $54.20 per share offer?
Sure. In fact, this could be a supposed Musk “big brain” move to get Twitter to do just that.
Unfortunately for Elon Musk, Twitter most likely isn’t going to play that game. As the company said last month: “We intend to close the transaction and enforce the merger agreement.”
But isn’t Elon Musk right about Twitter not sharing information on spam accounts?
This is the critical question, now, isn’t it?
According to Musk’s letter: “If Twitter is confident in its publicized spam estimates, Mr. Musk does not understand the company’s reluctance to allow Mr. Musk to independently evaluate those estimates.”
If you look at the acquisition agreement Elon Musk himself signed, it specifically waives Musk’s right to due diligence. In layman’s terms, it means Musk agreed to buy Twitter “as is.” Basically, it doesn’t matter how many fake accounts Twitter has … Musk waived his right to find out.
But let’s humor Musk a bit here … like Twitter has. Twitter gave Elon as much information as they could without violating the company’s intellectual property (IP) rights.
Twitter CEO Parag Agrawal even tweeted out publicly how the company determines which accounts are fake and get banned, stating: “The use of private data is particularly important to avoid misclassifying users who are actually real.”
There are two distinct problems for Twitter and Musk here.
First, in order to accurately show Elon how it distinguishes between real and fake accounts, it would have to show him users’ personal data. Doing so could potentially open Twitter up to privacy lawsuits.
Second, part of Twitter’s verification process clearly uses proprietary IP. Making sensitive company IP available to Elon Musk is tantamount to making said data publicly available … ‘cause you know Musk is gonna tweet about it.
Furthermore, no company in its right mind would willingly give away proprietary IP. That’s a tech company’s bread and butter … its lifeline … its “moat,” if you will.
Should he buy Twitter, Musk would have access to all of that data with no restrictions. But as a potential buyer? Not gonna happen.
Think of it this way … people running for president of the United States get briefed on potential national security issues once there’s a good chance they might win. However, they don’t get the nuclear launch codes until after they’re sworn in.
Yes, that’s an over-the-top comparison … but it still seems like a pretty good rule, right?
You don’t get access to company secrets until you own said company, Elon. And you agreed, in a legally binding document, that you didn’t care about due diligence anyway.
This one is probably going to court, Great Ones. With Elon Musk claiming he was wronged somehow, and Twitter arguing that the deal must go on.
Naturally, TWTR stock is falling today — down roughly 4% for obvious reasons. Meanwhile, Tesla (Nasdaq: TSLA) rallied more than 3% on the news, which seems overly optimistic to me.
In fact, any TSLA stock rally at this point seems overly optimistic right now.
If Elon Musk has to go to court, that’ll cost money.
If he has to go through with the TWTR acquisition, that’ll cost money.
If he flat out ends the TWTR acquisition, that’ll cost money.
And where does Elon Musk get most of his money? That’s right: TSLA stock.
I hope you Tesla investors have “strong hands.” You’re probably going to need them. This is going to get worse for both TSLA and TWTR shareholders before it gets better.
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And with that, we will call it a Monday. I think a hamster fell off its wheel or something… Anywho, we’ll be back tomorrow with a full edition of Great Stuff.
In the meantime, if you want to share your take on the Musk man’s tale of Twitter woe, send me your thoughts at [email protected].
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