Elon Musk postpones Twitter acquisition: What’s the real reason?

Yesterday (May 13), Musk tweeted that he decided to put the deal on hold acquired Twitter to see if the number of fake accounts (fake/spam) on Twitter is really only 5% as the company claims.

However, commenting under that tweet, Mr. Musk confirmed that he was still committed to buying this social network. But Mr. Musk risks being sued by Twitter for breach of contract. The richest person in the world may have to pay billions of dollars in compensation.

Musk may be sued by Twitter

Musk and Twitter agreed to a so-called termination fee of $1 billion when the two sides reached an agreement last month. However, this “breakup fee” is not a guarantee for Mr. Musk to “quit” without consequences.

A break-up fee paid by the buyer is applied when there is an external reason why the transaction cannot be completed. Buyers can also suspend the deal if they find inaccurate information that could have a “serious adverse effect”.

What is the real reason why Mr. Musk decided to “turn the wheel” with the Twitter acquisition? (Photo: MW).

However, according to an M&A lawyer familiar with the matter, the stock market sell-off that cost Twitter more than $9 billion in market capitalization is not considered a valid reason for Musk to cut his losses.

The lawyer argued that if Mr. Musk dropped out of this bid simply because he felt he had paid too much, Twitter could sue him for damages up to billions of dollars in addition to the $1 billion fee as agreed. .

This has also happened before when American jewelry company Tiffany sued French luxury goods empire LVMH in 2020 for withdrawing from an agreed acquisition agreement. That lawsuit was settled when Tiffany agreed to reduce the “sell” price from $16.2 billion to $15.8 billion.

What is the real reason?

According to CNBC, the reason why Mr. Musk paused this transaction may be similar, that is, he wants Twitter to reduce the selling price.

Twitter shares fell more than 8% yesterday (May 13) and down 23% from the price of $ 54.2 per share that Mr. Musk agreed to buy back Twitter. Part of this drop has to do with the overall plunge in tech stocks this month. The Nasdaq is down 11% from April 25, the day Twitter approved Musk’s buyout offer.

“This could be Mr. Musk’s negotiating tactic,” Toni Sacconaghi, a senior research analyst at Bernstein, told CNBC, adding that the market has plummeted and Musk could use the guise of user numbers. actually works for renegotiation.

In addition, Mr. Musk may also feel some pressure or liability to other potential investors about Twitter’s price drop, even if the richest person in the world doesn’t care much about price.

Musk is in talks with outside investors including private companies and preferred lenders to reduce his personal stake in Twitter. If he can get a discount from the social networking company, the return for outside investors could be higher when Twitter re-lists or sells again.

Although Mr. Musk said he remains committed to acquiring Twitter, he may be pressured to give up because of the losses he is suffering on paper related to ownership of Tesla stock. Tesla shares are down about 24% month-over-month.

If Musk attributes the drop at Tesla to his Twitter acquisition and potentially substantial damages including $1 billion in termination fees and compensation if he loses the lawsuit, , then the decision to stop is reasonable.

But with the breakup of this acquisition deal, Musk will also face reputational damage. It is not clear whether in the future any company will risk selling themselves to Musk after this “turn the car”.

Twitter may need to renegotiate

Just as the Tiffany and LVMH deal was finally settled, Twitter may have little choice but to renegotiate with Musk. The social network also seems to want to avoid a lengthy and costly lawsuit. Employees may also leave Twitter because the company doesn’t have a clear plan for the future. Twitter is cutting costs, it just fired two executives and said it was temporarily suspending hiring.

Therefore, CNBC thinks, the best that Twitter can do is accept a lower offer from Musk.

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