Connect with us

Business

Why Elon Musk’s Twitter Deal Was Bound To Fail

Published

on

Why Elon Musk's Twitter Deal was bound to fail, Twitter sues Elon Musk, Breaking: Elon Musk Officially Terminates Twitter Deal

Elon Musk’s bid to buy the micro-blogging site, Twitter, for $44 billion became a global topic and continued to dominate the media since the announcement. While some people had rather the Musk and Twitter deal would not happen, others welcomed the idea. However, while everyone waited for the parties in the deal to finalise the buyoff process, it recently took a new turn: Elon turned around to announce that he no longer wishes to buy Twitter! Like what!? Why? How? Well, surprisingly, the signs have all been there. From the start, the deal was bound to fail after all. So, this report will show you why Elon Musk’s Twitter deal was bound to fail from the start.

The Deal:

The billionaire and richest man in the world, on April 25, 2022, entered an agreement  with Twitter to buy the tech company.

Musk and Twitter agreed he would buy the social media app for a $44 billion..

Consequently, in April, the Tesla CEO pledged to pay $54.20 a share for Twitter, amounting to the $44 Billion and the deal was struck.

However, the billionaire later threatened and put the deal on hold over claims that there are too many bot accounts on Twitter.

ALSO READ: Binance, 17 Other Giant Organisations Back Elon Musk’s Twitter Deal

In fact, Musk did not believe Twitter’s claims that only about less than 5% of its monetizable daily active users (mDAUs) are spam accounts.

The world’s richest man accused Twitter Inc. of allegedly breaching their acquisition deal by not providing him with the information about spam and fake accounts as he had requested.

Also, in a later amended securities and exchange filing, Musk said he believed Twitter is “actively resisting and thwarting”  his “information rights.”

The Tesla CEO wanted Twitter to prove that it has only fewer than 5% bot accounts.

He warned in a letter to the company that Twitter’s failure to prove the bots accounts  was in a “clear material breach” of its obligations in the deal.

ALSO READ: Hackers Force 44% Of Nigerian Companies To Pay Ransom – Report

READ ALSO: You Can Now Conduct WhatsApp Poll

Musk said he reserved all rights to terminate the merger agreement.

This was in response to Twitter’s Chief Executive Officer, Parag Agrawal’s claim that the number of fake accounts is less than 5% when measuring daily users.

However, despite claims by Musk, there are pointers to why the deal was bound to fail after all.

Here are the pointers:

Musk Failed to carry out due diligence before offering to buy Twitter:

One of the major pointers showing why the Elon Musk’s Twitter deal was bound to fail from the start was Elon’s failure to conduct due diligence on Twitter’s true state.

First, the billionaire did not do his research properly as to the viability of buying Twitter at the price he offered to buy it.

Recall that Musk’s interest to buy the company only amplified on social media after a Twitter user suggested he could as well buy the company.

Instead of investigating to know the true state of the company, Musk soon jumped on the social media app to further ask users what they felt about making Twitter an open source.

After conducting a Twitter poll wherein respondents voted in favour of making the tech app open source as well as democratising it, Musk jumped in to buy the company.

Moreover, the billionaire also initially failed to take seriously the issue of bot accounts which Twitter shareholders  claim he knew about before offering to buy the company.

According to The suit which the shareholders filed in a federal district court for Northern California, Musk knew about the fake accounts before bidding to buy Twitter.

According to the suit, “Musk negotiated the Twitter Buyout over the weekend of April 23-24, 2022 without carrying out any due diligence.”

“At the time, Musk was well aware that Twitter had a certain amount of “fake accounts” and accounts controlled by “bots” and had in fact settled a lawsuit based on the fake accounts for millions of dollars.”

So, the lack of due diligence by Musk on Twitter actually made him miscalculate the viability of buying the company.

Consequently, discovering later about the bots accounts and other issues that likely show that buying the company may not be lucrative after all forms a clog in the wheel of the deal, hence, the decision to terminate it.

Other reasons why the Elon Musk’s Twitter deal was bound to fail are: the global tech market values experiencing bearish trend; and the world’s billionaires’ worth dwindling.

Twitter Share price down:

Since Elon announced his bid to buyout Twitter, the company’s share  price started a downward journey.

This led to Twitter losing about $8 billion in valuation since the Buyout was announced.

However, Twitter shareholders later sued Musk for being the reason why the company loses its share values.

The shareholders had claimed that Elon Musk’s constant tweets were against Twitter.

In The suit which the shareholders filed in a federal district court for Northern California, they argued that Musk intentionally drove down the company’s stock to secure a better deal.

Meanwhile, Musk would have now calculated that it would not be a wise business investment buying a company at a price way above what it is worth.

So, going ahead with the deal would mean that he would have bought Twitter way above what the company is worth, according to market cap.

$1 Billion Fine Over Cost Of Running Twitter After Buyout:

Similarly, the Elon Musk and Twitter deal also headed for a crash because Elon must have later realised that it could pay him more to pay the $1 Billion naira fine and opt out of the deal than spend more billions running the company that may not become lucrative for him after all.

Recall that one of the terms of agreement between the billionaire and the tech company is that Musk would have to pay a fine of $1 Billion if he decides to opt out of the Twitter deal, like he now wants.

But the recent market situation that have seen many tech companies having bearish trends saw Twitter value depreciating drastically.

Twitter shares went down last week earlier this June to sit at $36.81 when market closed.

This fall in Twitter’s value made buying the company at $54.20 a share unwise for Musk.

Meanwhile, Tesla shares have equally been on the downturn whereas the Elon intends using the bulk of his Tesla shares to buy Twitter.

Tesla shares falling means Musk will pay from Twitter using more Tesla stakes:

Similarly, the Musk and Twitter deal headed for a fail because as soon as the billionaire declared to buy Twitter, his stake at Tesla began to dwindle.

Note that Musk was going to use a larger chunk of his stake at Tesla to finance the Twitter buyout.

However, shortly after announcing the buyout, Tesla stock value took a downturn. The value of the stock now worth much less than it was before the Twitter deal.

Nevertheless, Twitter Shareholders accused Elon in a suit saying the billionaire, having observed he was at a margin call which required that he would expend more cash to buy Twitter, he decided to engage tactics to opt out of the deal.

“Because Tesla’s stock is worth much less now than when Musk agreed to buy Twitter, Musk is at risk of a margin call or a requirement to put up more cash. Musk quickly acted to attempt to mitigate these personal risks to himself,” the suit had said.

They said the Tesla CEO was using tactics to force Twitter to reduce the buyout price by $11 billion.

“Musk proceeded to make statements, send tweets, and engage in conduct designed to create doubt about the deal and drive Twitter’s stock down substantially in order to create leverage that Musk hoped to use to either back out of the purchase or re-negotiate the buyout price by as much as 25% which, if accomplished, would result in an $11 billion reduction in the Buyout consideration,” they said.

Since Tesla’s stock — Musk’s primary source of wealth — plummeted amid a broader stock market selloff in May, Musk soon seemed less enthusiastic about owning Twitter.

Elon Musk’s Wealth Down Over Bearish Stock Market:

Tesla’s CEO as well as other tech billionaires like Bill Gates, Jeff Bezos and Bernard Arnault lost many billion dollars following bearish stock market.

Elon Musk’s wealth, as at May 2022, decreased by $18.5 billion marking the highest loss of the day for him.

The loss reduced his net worth to about $249 billion.

This reduction in net worth is equally another pointer to why the billionaire may have decided to opt out of the Twitter deal.

What this means is that should he buy Twitter at $44 billion, his worth will reduce further and he could lose the bragging right to being the richest man in the world.

Crypto Meltdown And Regulations Cast Shadow On Elon and Twitter Deal Success:

Although Twitter had earlier said it was considering integrating cryptocurrency on the platform, Elon Musk later teased that crypto could become a mode of payment via Twitter.

That tweet led to the recovery in the broader cryptocurrency market which had experienced a meltdown that saw Bitcoin down from its high cap of $46,000.

However, with the announcement of Elon Musk and Titter deal, the market capitalization of cryptocurrency in general then went up by 5.77%.

This signified positive expectations by the larger crypto market since digital assets and payments were on their way to Twitter.

SHIB, ELON, SAMO, MONA and HOGE  all went up 10% and more bringing the total meme coin market capitalization at approximately $35.7 billion.

Meanwhile, although Dogecoin’s price and Musk’s takeover of Twitter were not directly related, industry experts, however, believed that Musk’s repeated endorsement of the meme coin attracted speculation from crypto investors who hopped that Dogecoin could be included in Twitter’s long-term plans.

However, the continued regulation on Crypto by the US regulatory agencies, rather, casts a shadow on the realisation of this crypto-Twitter integration.

Musk would have considered that restrictions on crypto could hinder his dream of generating huger revenue from the integration of crypto on Twitter.

Similarly, the global crypto meltdown which has seen the value of cryptocurrencies dwindle drastically equally has a ripple effect in driving a clog in the wheel of Musk and Twitter deal.

It may not have become very lucrative any longer for the billionaire investor to go ahead with the Twitter deal when his dream of integrating crypto on Twitter is further affected by the crypto meltdown which has seen Bitcoin price fall from a high of $46,000 to below $19,000.

Nevertheless, regardless of Elon Musk’s decision to opt out of the deal which was bound to fail after all, Twitter is not backing out.

Wedbush Securities analyst, Daniel Ives, said of this thus:

“For Musk, the best case is he pays the $1 billion breakup fee but that appears very unlikely.”

“The irony is that Twitter as a fiduciary is clearly looking to enforce a deal that Musk doesn’t want. It’s like buying a house you don’t want.”

Twitter Sues Musk, Says Deal Musk Proceed:

Twitter, on Tuesday, sued Tesla CEO Elon Musk, for saying he wants to opt out of the deal to buy the company.

The micro-blogging app is forcing Musk to complete his $44 billion takeover of the social media company.

It is accusing the billionaire of “outlandish” and “bad faith,” actions it said have caused the platform irreparable harm and “wreaked havoc” on its stock price.

Twitter’s lawsuit opens with a sharply-worded accusation: “Musk refuses to honor his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests.”

“Having mounted a public spectacle to put Twitter in play, and having proposed and then signed a seller-friendly merger agreement, Musk apparently believes that he — unlike every other party subject to Delaware contract law — is free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away,” the suit stated.

Why Twitter Is Suing Musk:

Twitter is suing Musk because the Tesla and SpaceX CEO alleged last Friday that Twitter has failed to provide enough information about the number of fake accounts on its service.

However, Twitter said it cooperated in providing the data that Elon requested on fake “spam bot” accounts.

It also added in a lawsuit suggesting it was concerned that Musk might disclose sensitive information about it which its competitors could use against it.

Twitter said disclosing too much “highly sensitive information” could expose the company to competitive harm if shared.

The tech company further said thus:

Musk “has been acting against this deal since the market started turning, and has breached the merger agreement repeatedly in the process.”

“He has purported to put the deal on ‘hold’ pending satisfaction of imaginary conditions, breached his financing efforts obligations in the process, violated his obligations to treat requests for consent reasonably and to provide information about financing status, violated his non-disparagement obligation, misused confidential information, and otherwise failed to employ required efforts to consummate the acquisition.”

Anthony Chinonso Ogbonna is the editor of Techuncode media. He is a seasoned journalist whose stint cuts across broadcast, print and, especially, the online media. A graduate of Mass Communication from the University of Nigeria, Nsukka (UNN), Anthony holds a Masters Degree in Multimedia Journalism. He aligns his belief with those of world tech communities, holding tenaciously that the world is solely driven and can only be best with tech. Furthermore, Anthony believes that technology is simple, fun and is not what one, especially Africans, should be scared of, hence, his passion for telling compelling stories about tech in ways relatable to the ordinary user. He has his hobbies in reading and designing (new hobby though.)

Trending