Adam Hardej

Jul 14, 2022·Newsletter

Elon pulls out...

Elon pulls out...

Now that I think about it, it's probably not the first meme-driven lawsuit - but it has to be the biggest. After a few months of parries it looks like the Twitter-Elon courtship is going to get ugly. Musk has officially backed out of the deal and Twitter is suing. Before we jump in to what it all means - let's remember how we got here:

  • Late January - Musk starts buying up Twitter shares on the sly.
  • March 14th - Musk's stake in Twitter reaches 9.2%, making him the largest shareholder
  • April 4th - Musk discloses his holdings. Twitter shares rise 27%.
  • April 5th - Twitter announces that Musk will join the board.
  • April 10th - Musk decides to not join the board.
  • April 14th - Musk offers to buy Twitter at $54.20 per share, a +30% premium valuing it around $44B.
  • April 15th - Twitter adopts a poison pill provision to prevent the Musk acquisition.
  • April 21st - Musk announces that he has commitments to finance the acquisition.
  • April 25th - Twitter accepts the $44B offer from Musk.
  • April 29th - Musk and Twitter finalize the deal. Musk sells $8.5B of Tesla stock to help finance it.
  • May 4th - Musk secures $7B from a bunch of fancy backers like Sequoia, Larry Ellison, an Binance.
  • May 6th - Musk projects that he will quintuple Twitter's revenue to $26B by 2028.
  • May 12th - Twitter announces a hiring freeze. Two top executives leave Twitter.
  • May 13th - Musk tweets that the deal is "temporarily on hold" due to concern of bots, but also ensures that he's "still committed" to the deal.
  • May 16th - Musk replies to Parag Agrawal's (Twitter CEO) thread about measuring the number of bots on the platform with a poop emoji.
  • May 26th - Twitter shareholders sue Musk for stock manipulation.
  • June 6th - Musk threatens to pull out of the deal if Twitter doesn't share more information about bots on the platform.
  • July 8th - Musk officially tries to back out of the deal, citing the bot issue.
  • July 12th - Twitter sues Musk in Delaware's Court of Chancery to force him to complete the deal.
  • Today - Twitter is hanging out around $36 per share, down 48% from 12 months ago, only down about 5% from 6 months ago, but down ~30% from the $51 high that came on April 25th when Twitter accepted the offer.

Phewf, let's catch our breath for a second here. What a ride.

Overall, I'm disappointed to see things happen this way. Here at Stonks, we were excited about this potential go-private move for Twitter, which has historically underperformed despite being an iconic platform. Outside of it being Elon - we saw this as a chance for Twitter to make some much needed improvements away from Wall Street analysts and quarterly public market price pressure. We even presented an opportunity to invest in the deal on Stonks.

The stage is set for a big lawsuit in Delaware that everyone expects won't come to a conclusion anytime soon. As someone who has followed this closely, here are some of my thoughts:

  1. This was never an "impulse buy" as some media outlets like to portray it. The business reasons to take Twitter private are compelling. You don't raise +$7B from sophisticated investors for the lols. Elon might be a meme-lord, but the people who were putting up a lot of the cash for this deal are not.
  2. The Twitter bots issue is a real one. Twitter has quoted 5% of users as bots in public filings and that factors into how the business is valued. The fact that the there's no clear answer as to how the number is derived or can be replicated is worrying and brings up larger questions about what public tech companies are required to report. What's actually in question here is whether or not Elon can contractually back out of the deal based on the specific wording of the agreement related to this type of due-diligence - not whether the bots thing is sketchy or not. It is sketchy.
  3. It strikes me as super weird that Twitter is trying to get bought by someone that doesn't want to buy them. This line of thinking quickly points towards to the fact that from a shareholder value perspective it would clearly be a win so they kind of have to pursue it, but it's not a great look. If you're working at Twitter this can't feel good and I'd be surprised to see anything noteworthy from them as long as this circus continues.

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