It has become a tabloid sensation since Elon Musk offered to buy Twitter (TWTR) in April.Initially, Elon Musk offered $54.20 per share, or $44 billion, to buy Twitter.Musk complained a few weeks later that Twitter’s user numbers were being inflated by bots, claiming that bots accounted for closer to 20% of users than the claimed 5%. Ultimately, he backed out of the deal
As a result of Musk’s withdrawal from the deal, Twitter has sued Musk in Delaware, and a trial is scheduled to begin in October.
Why does Elon Musk want to buy Twitter?
Musk decided to buy Twitter. But why?
The most attention he receives is due to his concerns about free speech and political neutrality. A number of decisions made by Musk about account suspensions and censorship have been viewed by him as being politically motivated, including the suspension of former President Donald Trump.
As a result of these concerns, Musk appears to be a benevolent billionaire who is seeking to fix Twitter out of passion rather than profit. To some extent, this is probably true, but it does not portray the whole picture.
There’s no doubt that Elon Musk is one of Twitter’s biggest users. Furthermore, it is almost certainly the most engaging account on the platform, ranking among the top 10 in terms of followers.
He has a tremendous amount of power with his tweets. When Musk sends a 100-character tweet while waiting for a ride, the financial markets could rumble by billions of dollars. Among his tweets are those about Dogecoin, GameStop, Bitcoin, Etsy, etc.
In addition to demonstrating his status as an eccentric science fiction billionaire, his tweets are full of power. Musk might be able to get more value from that digital property than he did from Twitter’s purchase.
Bloomberg’s Matt Levine agrees:
Compared to Facebook and other social media companies, Twitter doesn’t make that much money. Market capitalization-wise, it is not a big company. In other words, Elon Musk might say, “You know, I get a lot of value from this direct access to the public.” Elon Musk probably has a good reason for wanting direct access to people. The value created by that access must be monetized in some way. Among the many benefits it creates are those for sports stars and celebrities, as well as presidential candidates such as Donald Trump. In the past, Donald Trump’s tweets generated billions and trillions of dollars in market movements, didn’t they? It was never much of a hit on Twitter.
In Musk’s opinion, Twitter bots and spam are causing users and engagement numbers to appear larger than they are.
The case of Twitter
As far as Twitter is concerned, there are two basic goals:
- Close the deal with Musk
- Immediately attend the trial
According to them, the merger agreement they signed with Musk contained no language regarding bots and spam. Therefore, Musk should be forced to close the deal if he uses claims about inaccurate bot numbers.
The stated and unstated defendants want to go to trial as soon as possible.
The Twitter legal team says the daily deal doesn’t harm the company’s brand or operations. It is certain to create chaos in the company if the company does not know who will own it, who will be its CEO, which employees will stay, etc.
There is an unspoken reason for Musk’s rush to the Twitter trial: his financing expires in April 2023. Musk can delay the trial as long as he wants, but the longer he delays, the closer he gets to losing his financing, and thus the case for not closing the deal becomes stronger.
The case of Musk
Musk’s deal almost exclusively relies on skepticism about Twitter’s users, particularly mDAUs (monetizable daily active users).
By using an inaccurate process to estimate how many bots are on Twitter’s platform, Musk and his legal team claim that the mDAU metric is skewed due to the fact that Twitter is underestimating the number of bots and spam.
- Musk and his team have been unable to get more accurate user numbers from Twitter due to Twitter’s reluctance to provide them.
- In an interview with Musk, Musk seems to have been uncertain about Twitter’s mDAU numbers before.
- Musk does not want to block the deal since he already owns a large stake in the company.
Delaware Court Update
There is no doubt that Kathleen McCormick will make a difference in this case, as she made the rare decision to force a reluctant buyer to close a merger deal in a similar scenario.
A week after Kohlberg & Co. proved the Coronavirus pandemic adversely affected their sales numbers, McCormick convinced Kohlberg to invest $550 million in cake decoration company Decopack Holdings Inc.
Twitter received a speedy trial after McCormick agreed to grant its request on Tuesday. October is the scheduled start date for the trial. It is in many ways impossible for Musk to keep the deal afloat until its financing expires in April 2023.
It seems that legal experts are on Twitter’s side, especially now that Twitter has requested a speedy trial, in light of a number of legal experts’ opinions on the case.
There is no way Elon Musk can win this trial after hearing the reputation of the Delaware Court of Chancery and Chancellor Kathleen McCormick, along with the murky legal grounds on which he is suing and the speed of the trial.