Buyer’s remorse is no way out for Elon Musk
We’ve all had buyer’s remorse, but few people find themselves regretting a $44 billion purchase. Since Elon Musk agreed to buy Twitter at a substantial premium in April, the stock market has fallen, with tech stocks among the hardest hit. Twitter now seems much less valuable. And for Musk, borrowing against Tesla stock to pay the company is much more expensive.
Although Musk has good financial reasons to renegotiate his acquisition of Twitter, he cannot cancel the purchase agreement citing poor market timing. Musk faces an uphill battle with Twitter in court to walk away from the deal.
In his rush to acquire Twitter, Musk left himself with little legal leeway. He argues that his exit is justified by inaccurate spambot numbers and Twitter’s inability to provide certain information about spambot calculations. Neither argument seems supported by the available evidence or, more importantly, relevant to the contract signed by Musk.
Musk says he’s leaving because Twitter misrepresented the percentage of its daily monetizable active users, or dMAUs, that are bots or spam accounts. For years, Twitter has represented that bots accounted for less than 5% of its dMAUs, although it called the percentage an estimate. Whether he agreed or not, Musk accepted that number by pledging to buy Twitter.
Indeed, Musk has made Twitter’s bot issues — a problem more visible to power users like himself — a focus of his acquisition effort. When discussing his offer at TedX Vancouver in April, he said, “A top priority I would have is to weed out the spam and scam bots and bot armies that are on Twitter.” Later, he tweeted, “If our Twitter bid succeeds, we’ll beat the spambots or die trying!
Insofar as they are a problem, spambots were something Musk was aware of and apparently planned to address. These statements make Musk’s efforts to recast the bots as a reason to terminate the deal unconvincing. So far, Musk has criticized Twitter’s bot measurement methodology, but has shown no real evidence of its inaccuracy.
In any case, the deal does not depend on a specific number of bots – even if Twitter’s dMAU figures are inaccurate, their inaccuracy should have a “material adverse effect” on Twitter’s business to give Musk any potential .
The agreement obligates Twitter to provide Musk with “information regarding its business, properties and personnel” for “any reasonable business purpose related to the performance” of the agreement. Musk claims Twitter has failed to do so. In his apparent effort to learn more about how dMAU numbers are calculated, Musk requested not only internal bot reports and metrics, but also text and email records about bots and models. Twitter financials for the deal.
By asking for more information than Twitter is willing to provide, Musk might be able to come up with a legally adequate justification for walking away — but those requests might just be deemed unreasonable or irrelevant to the deal.
Musk’s deal with Twitter includes a $1 billion severance fee (pocket change for Musk) and a specific performance clause. The clause allows Twitter to take legal action to force Musk to honor the terms of the contract and buy the company for $54.20 per share. When Musk announced the deal was off in early July, Twitter filed a lawsuit over specific performances.
Now the Delaware Chancery Court must decide whether the contract Musk signed and his behavior since entitles Twitter to this remedy. Twitter argues that it has a contractual right to specific performance and that because Musk breached the contract by publicly disparaging Twitter, he lost any termination options he might have had. The court will consider Musk’s claim that he rightfully terminated the agreement because errors in Twitter’s dMAU measurement would have a “material adverse effect” on the company, and his requests for information did not not been satisfied.
Although the lawsuit boils down to a contractual dispute, it has much broader implications.
For Twitter shareholders and its board, being bought out at $54.20 is better than owning Twitter at its current price of $38 per share or whatever price it might fall to if Musk’s bid to go away. They’re the ones suing Musk, but they’re not the only ones who care about what’s happening to Twitter.
Musk’s highly publicized battle to acquire — and now to avoid acquiring — Twitter should serve as a reminder of the downsides of centralized social media. Twitter occupies a central place in American political discourse. Unlike other platforms, it’s wide open by default – tweets aren’t limited to friends or groups – so it’s a place where everyone and members of Congress can hang out or hang out. shout at. As a result, Twitter’s rules have become the subject of a political dispute.
Musk’s purchase was seen as a solution to everything from mismanagement and over-moderation of content to the capture of vital communications infrastructure by a rogue billionaire. In reality, if Musk takes ownership of Twitter, both imagined extremes will be tempered by the need to maintain profitability.
Ultimately, this range of concerns militates in favor of decentralization. Reasonable users will always disagree on how to define and apply the rules of the platform. Many platform governance decisions are just trade-offs – ridding Twitter of bots would likely require a level of user verification that would discourage anonymous speech. The more users can decide how the content they see is selected and with whom they interact, the less the owner of Twitter matters.
Whether the deal is done or not, the last thing this dispute, or social media, needs is a political solution. Whatever judgment the court makes will be limited to the parties involved and will not affect other social media platforms. Even with Elon Musk involved, Delaware’s corporate law and precedents provide a more stable mechanism for passing the baton than a swing of partisan regulations or punitive antitrust enforcement.
Will Duffield is a policy analyst at the Center for Representative Governance at the Cato Institute. This column was provided by InsideSources.