Betrayed by the Doge King: Elon Musk, Twitter, and Tesla
Tesla Owners Club Belgium, CC BY 2.0
As predictable as it is devious.
On July 8th, Elon Musk shocked the internet when he announced he was reneging on his $44 billion purchase agreement for the social media app Twitter; on the issue of a material breach of contract due to understated bots. Only four months previously, Musk put the fear of God into Big Tech when he announced his intentions to buy Twitter and make it a free speech platform. Twitter and the establishment left reacted by doing all they could to shake Musk off their trail, enacting a poison pill plan, threatening investigations and lawsuits, and mocking Musk in the media. However, Musk held firm, dodging any and all obstacles, and right as he approached the finish line, he turned around and flipped the bird at all of his supporters.
To say this result is only a massive betrayal of free speech is like calling the Pacific Ocean a puddle. Nevertheless, as horrid this result is for us poor deluded fools still using Twitter, it is only surprising to those who didn’t know the shady history of the Doge King. Evidence suggests Elon sought out the purchase in bad faith to liquidate Tesla shares. A continuation of his unethical business practices and is why I believe Elon will likely lose his legal war with Twitter.
What the Twitter Deal is Really About
Almost immediately after his TED talk in April announcing his intentions to purchase Twitter, after the media furor and celebratory online memes shared, Musk did something odd; he unnecessarily liquidated $8.5 billion of Tesla Stock. I use that word unnecessarily because, as detailed in his later acquisition announcement, which laid out his intention to fund the deal without Tesla loans, it’s clear he didn’t need to sell his stock to make the Twitter purchase. Almost every big financial firm on Wall Street wanted in on the sale, with players like Binance, Vy Capital, and Morgan Stanley, plus significant investors like Larry Ellison and the Prince of Saudi Arabia, so there was no shortage of funding to make the purchase happen. So why then would Musk liquidate Tesla stock?
Tesla, the electric car company that Elon heads as CEO, is a massively overvalued corporation, bouncing around between $900 billion to $1.02 trillion in market value. To put that into perspective, Tesla’s worth more than its ten top car manufacturing competitors’ values combined. However, Tesla only generates $53 billion in revenue annually, which means that Tesla is doomed for a severe downgrade in the near future. Furthermore, Elon Musk, in what is easily his most significant source of wealth, owns 175 million shares of Tesla, worth around $143 billion.
This leaves Musk with a big problem; how does he turn those shares into dollars before the price inevitably plummets. One cannot just liquidate shares openly; there are laws and SEC regulations; having the CEO and largest investor sell a lot of their stock is sure to spook investors. So, what’s the fix? Find yourself a financial project to justify liquidating all those shares. Hence the purchase of Twitter.
The Garbage Bots Theory
What solidifies this motive is how Musk is trying to renege on the Twitter deal. The legal term is a Material Adverse Effect for breach of contract; meaning Musk is trying to get out of the agreement because Elon says Twitter has more bots – accounts controlled by AI programs instead of human users- than what Twitter told Elon during negotiations.
This excuse is, to use a technical term; bullcrap.
As stated in Twitter’s proxy statement resulting from the April 23rd weekend negotiation, Elon waved due diligence. This means that Twitter offered Musk all the necessary financial and technical data, which he then refused analyze before purchasing.
But what about the bots I imagine you readers are asking?
Twitter does indeed have a big bot problem; the site is at least 5% bots, with Twitter removing up to a million accounts daily, but this isn’t a surprise to any active users. Elon is a prolific user, going back to 2010 with over 102 million followers. Are we supposed to believe that this tech billionaire power user that strategizes his marketing campaigns around the platform didn’t realize Twitter had bots? That is beyond preposterous, and it speaks to a bad faith attempt to make Twitter look like it had breached Material Adverse Effect in court when they had not done so.
Bad Faith
Bad faith is a term synonymous with Musk. You only must look at his business history to know that. The man that claims to have co-founded both PayPal and Tesla; helped create neither. With PayPal, Elon had very little to do with it. He got lucky when his failing small digital transactions company X.com merged with a much larger Confiniuty and was then purchased by Ebay. There is a similar story for his crown jewel. Elon’s initial relationship with Tesla was as an investor; after its real co-founders, Martin Eberhard and Marc Tarpenning approached him. In return, Musk deposed them from their own company and used litigious maneuvering so he could be CEO and call himself a co-founder.
Then there are issues of Elon’s incompetence and greed. For every company with Musk that works like SpaceX, there are another dozen failed ventures. Think Neuralink’s brain chip technology is fantastic? Musk so severely mismanaged that venture that all the founding scientists left the company. Hate how real-world objects like the heated seats in BMWs are now getting paid subscriptions? Blame Elon. Tesla started the practice by charging users up to $20,000 to unlock basic software features in their vehicles.
Worst of all, though, is Musk’s flagrant disregard of the law. In 2018, a judge ruled that Musk made false statements about taking his company private while trying to boost Tesla’s stock price. The Securities and Exchange Commission charged him with civil securities fraud in 2019. Furthermore, just last year, the SEC complained that Musk had used the announcement of a meme-able $50 Tesla whistle to bury the news that Tesla had tried to hide significant defects, like some cars catching fire, from the public. This last violation was so egregious that if the SEC chooses, they can hit Musk with a lifetime ban from associating with any publicly traded company. Only Tesla’s massively overpowered stock price has protected him so far.
Why Twitter will win
Which brings us to the last important question: will Elon win the lawsuit with Twitter? So far, that looks like a no.
The Delaware judge in the lawsuit just ruled that instead of pushing off the case till next year — as Elon requested — there would be a five-day trial in October. Twitter’s lead counsel William Savitt pointed out that Elon continues to mock Twitter on their platform, and every day it lingers, it hurts Twitter. He described Elon’s actions as “sabotage.”
Elon’s lawyer Andrew Rossman retorted that Elon “doesn’t have an incentive to keep this hanging for a long time.” However, why did they request the trial be postponed? Why is Musk fighting so hard against a speedy discovery? Probably because the merits of the case favor Twitter. As Savitt pointed out, according to the contract Musk signed, there is “nothing in the merger agreement turns on that question, there is no representation or warranty in the merger that is related to how many false accounts there may be on Twitter.”
Detritus
For Musk, I think he will come to regret the charade he’s played on us all. He likely thought playing the rubes by pretending to buy Twitter made sense. Even if he couldn’t get the termination fee of $1 billion waved, he could use that to offset his capital gains. Worst case scenario: if he pulls out, Twitter sues, he still gains $7.5 billion, and his clout skyrockets. This will help bury legitimate criticisms — with which there are many — deep in the Google web rankings for many years to come.
Here I come clean, dear readers. Until recently, I was one of those supporters. Knowing Elon’s history, I still hoped that this quirky billionaire would be the right guy to fix Twitter; it wasn’t as if his every venture was illegitimate; no one can say SpaceX isn’t an incredible accomplishment, nor the technological gains with Tesla amazing.
There is a considerable demand for online places where people can speak their minds on topics like that without fear of public reprisal and job loss. How many millions of users — conservatives, libertarians, trans radical feminists, anti-war protestors, foreign dissidents and much more needing access to free speech — will now receive less? What about everyone that invested in Twitter because Elon promised to fix it? Elon Musk pledged investors a better company and users a freer platform. In the end, he delivered a worse Twitter on both fronts. Musk had the chance to right a major wrong and rebalance the culture towards liberalism. Instead, he took the money and ran.
not for nothing, but a great many of us pointed out this was a scam from the get go. That we were poo poo’ed is unfortunate.
As for the free speech angle – free speech, like all rights, carries both responsibilities and consequences. Chief among those consequences is being fired for what you say and, in some cases, where you say it. You have no right to employment (especially regardless of conduct), and with the pernicious rise of union busting “right to work” states, I am surprised we don’t see more firings for speech. You can’t fix that by relaxing Twitter moderation.Report
If there is “considerable demand” for an online venue where you can say what you want without adverse consequences in meat world, it’s like considerable demand for unicorns that s**t rainbows. No online venue, no matter who owns it or what its internal rules, can prescribe how others react to a user’s speech, and anyone who thinks that Elon Musk owning Twitter could change that is ripe for Musk’s picking.Report
Musk may still end up purchasing Twitter. This case is being decided in Delaware’s Chancery Court and they can force Specific Performance of the contract. However, I’m not sure Twitter shareholders would actually want that.Report
They can force specific performance but that can very easily mean “pay the liquidated damages for breach.” A billion dollars for the privilege of not going through with it is enough money to sting a little bit for anyone; though as the OP points out, that may simply be the cost of Musk doing this sort of business.Report
If Twitter wins the lawsuit with Musk, doesn’t that mean that Musk ends up buying it?Report
The stock price has wandered between $32.65 and almost $40. If you think that the court will make Musk buy it, this is a great opportunity to make some money.
Purchase the stock at $39.25 today, get bought out at $54.20 in a quarter.Report
Or he agrees to settle by giving twitter a giant amount of money for the privilege of f*cking off. They will keep twitter and count his bucks while he trolls his suckers on something else.Report
I imagine that you can settle at any time during a proceeding if both parties are amenable.
I’m guessing that the $1B settlement is insufficient as far as Twitter is concerned, though.Report
Yup. They can settle up to a little before the decision is read.
Rich people don’t like to be jerked around and trolled for some other rich aholes jollies. They want a FA and FO fee. Just as is expected.Report
I mean you sorta listed it above…Twitter is going to want the diff between their current stock price of about $40 and what Musk promised.Report
Musk doesn’t give a crap about free speech. His speech matter to him, nothing much else does. At best he has a shallow child’s understanding of free speech. Rich jerk who likes to troll isn’t gonna be protecting any free speech he doesn’t like.
At least Space X is still good.Report
On July 8th, Elon Musk shocked the internet when he announced he was reneging on his $44 billion purchase agreement for the social media app Twitter;
Shocked in the sense that people had been predicting it from the first.Report
Right? The OP does sort of cop to hat later in the post . . . but still. I never expected him to go through with it and said repeatedly he was shorting stock – which it turns out isn’t far from the Tesla stock dump the OP mentions.Report
The complete nonsensical justifications from Musk fanboys is hilarious at this point.
My favorite one is ‘Musk knew they were lying about the bots in their SEC filing and now he can prove it!!!!’
And it’s like: One, if they were lying in SEC filings then the proper venue for that is a shareholder lawsuit, and Musk was already a very large shareholder so would have made a ton of money. Contracting to buy the place to prove this is nonsensical especially since,
Two, you can’t assert fraud if the person selling you the thing is lying to you but you know they’re lying to you! That’s not how fraud works, for the transaction to have been fraudulent, you have to have been _deceived_, you have to believe the false claims, and Musk has been claiming this entire time that he doesn’t believe Twitter’s claims! It’s literally why he said he was going to buy Twitter in the first place, because they were lying about the massive bot problem that they had!
In some hypothetical universe where Twitter proves to have been lying about the number of bots, (which is almost certainly not true because Twitter has stated their methodology for study, and as long as they followed it they’re pretty much fine, but let’s pretend they’ve been lying), Elon Musk is about the only shareholder who can’t get damages from them. Because he repeatedly said they were lying and he knew it, before he bought their stock and signed the contract to buy the company.Report
BTW, the actual proper response if you think a public company has been lying in their filings, is to massively short the stock, and then buy literally one piece of stock so you are eligible to sue them as a shareholder, and then make a bunch of money when the stock plummets. Actual hedge funds do this all the time when they see claims made in filings that they don’t think will stand up in court.
Attempting to buy the company is literally the exact opposite of what you should do, but it’s part of Elon’s general strategy of ‘being incredibly stupid and having no idea how anything works’.Report
“Twitter’s lead counsel William Savitt pointed out that Elon continues to mock Twitter on their platform, and every day it lingers, it hurts Twitter.”
Maybe Twitter should ban him! :-pReport