By Giorgio Corrias
On the 28th of October 2022 — half a year after his first bid for the company — Elon Musk finally completed his Twitter takeover. The events that unfolded over the past 6 months are reflective of Musk’s deceptive yet intelligent character, and can now be remembered as one of technology’s greatest sagas.
Last April, Musk flirted with the idea of owning Twitter — or at least a piece — for weeks on end. He first disclosed his 9% stake in the company, and subsequently declined joining its board of directors so he would not be limited to a maximum stake of 14.9%. Yet, it was only after having insulted the media company in a succession of tweets that Musk declared his intention to purchase the whole company. Soon thereafter, the Tesla CEO made an unsought bid of approximately $40bn.
On its platform, Twitter prohibits a wide array of content, ranging from spam and threats to misinformation and the sharing of private information. Thus, Musk’s takeover may alter the dynamics of debate and discussion on the site, as he strongly believes in free speech and has previously criticized the company for removing posts and banning users.
“By “free speech”, I simply mean that which matches the law.
I am against censorship that goes far beyond the law.
If people want less free speech, they will ask government to pass laws to that effect.
Therefore, going beyond the law is contrary to the will of the people.”
Accordingly, Musk intends to ease Twitter’s moderation policies and publicize its algorithm for ranking content, which controls what users consume in their feed. He proposes a platform where moderating offensive and unpleasant content is obsolete.
In his plan to take Twitter private, Musk proposes other, equally problematic, changes to Twitter’s structure. Musk’s intended financing of the deal constitutes an additional $13bn of debt that will sit on Twitter’s balance sheet – who are currently generating negative free cash flow of approximately $134m. To account for this, Musk plans to cut costs in order to sustain higher profit margins, and eventually pay this debt in full. The Tesla CEO reportedly told investors he plans to cut 75% of the workforce — a workforce comprising merely 7,500 employees.
In a statement, Twitter disclosed they would “carefully review the proposal.” However, the company’s executives made it clear that Musk would have to spend more billions if he wanted to purchase the company. Thus, to fend off Musk’s offer, the company turned to a corporate defense mechanism known as a poison pill. The mechanism intends to make it harder for a potential buyer to pursue the target company if the buyer ammasses shares above a predetermined threshold. In Twitter’s case, if Musk acquired more than the 15% threshold of the company’s outstanding stock, all other shareholders excluding the Tesla CEO would be able to purchase stock for a 50% discount. This would result in stock dilution (a decrease in shareholder’s ownership percentage) for Musk, and make it infinitely harder for him to buy the whole company.
Despite such a defensive strategy, less than a month later Twitter announced that — for $54.40 per share accumulating in a cash transaction worth $44bn — it entered into a definitive agreement to be acquired by Elon Musk. As per Musks’ intentions, Twitter would then become a privately held company.
“Free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated,” stated Musk. “Twitter has tremendous potential — I look forward to working with the company and the community of users to unlock it.” Yet, what the Tesla CEO repeatedly fails to understand is that such content moderation is not only in the best interest of social media companies like Twitter, but also our society as a whole. Were content moderation eased or removed, the app could soon be flooded by spam, pornography, hate speech, and a wide array of false information concerning several areas of social and political discourse. Considering our era of enhanced political polarisation, Musk’s takeover could not come at a worse time.
In May, Musk threatened to pull out of the deal, claiming Twitter was actively resisting his rights when completing the deal. The Tesla CEO’s lawyers argued the social media company refused to disclose the number of fake accounts on the platform, granting Musk the right to break the agreement. Musk also tweeted that the deal could not move forward until Twitter showed proof that said accounts comprised less than 5% of the company’s users, as Twitter’s SEC filings claimed. The social media company argued instead that it was Musk who violated their agreement by disparaging Twitter and its employees in a string of tweets.
Such tensions added a great degree of uncertainty to the deal, causing various scholars and academics to make assumptions of Musk’s intentions regarding his acquisition of the media company. Nevertheless, Twitter remained on course, aspiring to enforce the merger agreement struck the previous month.
The company was unable to follow through however, as Musk moved to end his deal to buy Twitter on July 8th over a dragged out disagreement on the number of spam accounts on the platform. With the Tesla CEO’s attorneys arguing that the company has made “false and misleading representations” in addition to breaching provisions of the agreement, Musk’s moves would inevitably lead to an undesirable legal battle with Twitter. A battle which, coupled with Musk’s series of tweets slandering the company, would go on to cripple Twitter’s share price, and to Musks’ credit increase the likelihood of a perhaps less expensive takeover.
For the company, completing this deal was of the utmost importance. In the past years, Twitter’s financial performance has been inconsistent, stagnating the company’s growth. Recently, its advertising business has faced pressure, resulting in more laid off workers and slowed hiring. Hence, Musk’s takeover represented a key opportunity for the company’s future. Four days later, on July 12th, Twitter sued Musk to force a sale of the company. The court would rule on whether the Tesla CEO must uphold the deal struck in April, or whether Twitter breached its obligation to provide Musk with the requested data — allowing him to abandon the deal.
Musk signed a legally binding deal with the company, which included a performance clause outlining that Twitter could sue the deal through, with the only condition reliant on the solvency of the billionaire’s finances. Twitter argued that changes in the stock market, fear of inflation, and supply chain challenges affecting Tesla’s CEO’s wealth had given Musk remorse about buying the company. They claimed Musk’s complaints about fake accounts were merely used as pretext to walk away from the deal.
Twitter’s lawyers stated Musk’s move to end the deal was baseless and unjustified, and that the Tesla CEO both knowingly and willingly breached his agreement to purchase the company. Twitter sought to expedite the case, requesting a trial in September. The Delaware judge however set the trial date for October.
By September, with lawyers of both sides having issued over 100 subpoenas and Twitter whistleblower Peter Zatko ready to take the stand, it seemed as though the two parties were set to go to trial in October. In another twist in this tale, Musk returned to his original proposition of buying Twitter for $44bn on October 4th, just days before his scheduled deposition. Such a proposition appeared strange considering Musk’s contribution in devaluing Twitter’s share price, yet it nevertheless forced Twitter to sell, and can thus be deemed a successful strategy on Musk’s part.
Keen to close the deal and avoid another turn of events, Twitter sought guarantees that Musk does not experience another change of heart, and reportedly asked a court in Delaware for protections that would ensure the Tesla CEO follows through on his proposal. Soon thereafter, Elon Musk’s takeover of Twitter was complete.
Ultimately, Twitter is the wrong company to be left in the hands of one person. Now, like other privately held companies, Twitter no longer faces the same disclosure agreements as publicly traded firms, nor are they required to have a shareholder-elected board of directors overseeing management. While these consequences of privatization seem fairly harmless, it would be a grave mistake for Twitter — one of the most influential actors in the public information sphere — to be liable to one person, especially when said person has similar ambitions as Musk.
Hence, Twitter’s takeover should incentivise lawmakers and politicians alike to undertake efforts to promote transparency and accountability by social media companies, especially considering the midterms and eventually elections, and the role misinformation has had in the previous two.
The views expressed in this article are the author’s own, and may not reflect the opinions of The St. Andrews Economist.
Illustration by Kristen Radtke / The Verge; Getty Images
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