Business: More about Elon and Twitter drama

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In the dumb theater of Elon Musk’s deal to buy Twitter Inc., this week Musk is pretending to want detailed information about how many of Twitter’s users are bots, and now Twitter is pretending to give it to him:

Twitter has agreed to share a vast trove of data about the content on its platform with Elon Musk, after the billionaire entrepreneur threatened to abandon his $44bn acquisition of the social media company if it did not provide more information about fake accounts and bots. …

Twitter’s board plans to share the “firehose” of publicly available data about tweets with Musk that it typically sells to social media monitoring companies, one person said.

The firehose includes a real-time stream of tweets, and information such as the devices they are written from. However it does not include private user information such as IP addresses, which Twitter has previously suggested is crucial to how it assesses for fake accounts. …

One person close to Twitter’s board said Musk’s team had previously requested access to the firehose data, but his team had been previously reticent to agree the non-disclosure agreements and other privacy terms stipulated for those accessing it. 

The person noted that Musk’s lawyers had said in the letter on Monday that any third parties reviewing the data would adhere to an NDA and that Musk would not retain or otherwise use “competitively sensitive information” if the deal did not close.

Will getting a copy of every single tweet help Elon Musk determine how many of Twitter’s “monetizable daily active users” are bots? Probably not. Will it look like a response to Musk’s demand for information, such that if this goes to court Twitter will be able to say “we gave him the information he asked for”? Sure whatever probably. What will Musk do with every tweet? Maybe he will use the technology of his brain-machine-interface startup Neuralink to download all of the tweets to his brain. Possibly that is why he wanted to buy Twitter in the first place? When he first announced his stake in Twitter, I thought:

If you are the richest person in the world, and annoying, and you constantly play a computer game, and you get a lot of enjoyment and a sense of identity from that game and are maybe a little addicted, then at some point you might have some suggestions for improvements in the game. So you might leave comments and email the company that makes the game saying “hey you should try my ideas.” And the company might ignore you (or respond politely but not move fast enough for your liking). It might occur to you: “Look, I am the richest person in the world; how much could this game company possibly cost? I should just buy it and change the game however I want.” Even if your complaints are quite minor, why shouldn’t you get to play exactly the game you want? Even if you have no complaints, why not own the game you love, just to make sure it continues to be exactly what you want? The game is Twitter, the richest person in the world is Elon Musk, and [etc.].

But perhaps I was not thinking big enough. The richest person in the world, who is also the most addicted-to-Twitter person in the world, is also the co-founder of a company that wants to create a “symbiosis with artificial intelligence” by implanting computers in people’s brains, and will soon also be the owner of Twitter (maybe). The plan is coming together. He is going to implant all the tweets in his brain, to achieve a symbiosis between himself and Twitter. He is buying Twitter so he can have all the tweets.

Or he isn’t! Let’s take the other side of it: Let’s assume that Musk really wants to get out of his deal to buy Twitter, or at least that he wants to credibly threaten that so that Twitter will agree to renegotiate the deal at a lower price. What levers does he have to do that?

One lever is that he can argue that Twitter has breached the merger agreement, either by having too many bots or by not giving him enough information about the bots, which would give him the right to walk away from the deal. Certainly he has been trying that, and we have talked about it extensively around here, and my basic take on it is that it is extremely dumb and there is no chance that it will give him a way out of the deal. (The attorney general of Texas is trying to help him out with this, for the memes, but that is even dumber and I am skeptical that it will lead anywhere.)

The other lever is that he can torpedo his financing. The way the deal works is that Musk has agreed to pay about $46.5 billion to buy Twitter. That money consists of $13 billion of debt financing that a group of banks led by Morgan Stanley have promised to provide, plus $33.5 billion of equity financing that Musk has promised to provide. Musk is allowed to syndicate the equity financing — he’s allowed to get outside investors to provide some of that $33.5 billion — and in fact he has gotten commitments from other investors for about $7 billion of that. But for our purposes, of figuring out how he can get out of the deal, that doesn’t matter: As far as Twitter is concerned, Musk is on the hook for all $33.5 billion of that, and if he can’t syndicate any more of it — or if his equity co-investors flake and don’t give him their money — he still has to pay the $33.5 billion out of his own pocket.

The $13 billion of debt financing is a bit different though. Technically Musk is not on the hook for that financing; his banks are. If they don’t come up with the money then Musk can get out of the deal by paying a $1 billion breakup fee, whereas if they do come up with the $13 billion then, at least in theory (that is, under the terms of the merger agreement), Twitter can go to court to get a judge to order Musk to pay the other $33.5 billion and buy Twitter. 

Do the banks have to come up with the money? Well, Musk is pretending that the bot thing could be an impediment to closing the financing: His banks are worried that Twitter has too many bots, they won’t lend Twitter $13 billion if it can’t prove its users are all real, etc. This is all nonsense: The banks can’t get out of their financing commitment because they decide they don’t like Twitter’s business, or because the debt market gets worse and they can’t find buyers for the debt. You can read the conditions to the banks’ obligations in Exhibit E to their commitment letter, and it doesn’t seem to me like they have much of an excuse to get out of their financing as long as Musk has no excuse to get out of the merger. The commitment letter does require a certain amount of cooperation from the borrower, but the borrower for this $13 billion is Twitter, so in theory Twitter can cooperate even if Musk doesn’t. 

Still he’s making life annoying for everyone:

Musk has been in discussions to arrange $2 billion to $3 billion in preferred equity financing from a group of private equity firms led by Apollo Global Management Inc (APO.N) that would further reduce his cash contribution, according to the sources. These conversations are now on hold until there is clarity about the future of the acquisition, one of the sources said.

The pause in financing activities offers the first clear sign that Musk’s threats are interfering with steps that would help complete the deal. Twitter has insisted thus far that Musk has been performing his obligation under their contract, including helping to secure regulatory approval for the deal. …

The deal uncertainty has also weighed on the plans of banks to get $13 billion of debt they have committed to the acquisition off their books through syndication. While still preparing to syndicate the debt, the banks plan to wait until there is clarity on the deal to launch the process, the sources said.

The banks do not believe credit investors will buy into the debt as long as the uncertainty lingers, the sources said. The banks have also found Musk’s disparaging public comments about the company unhelpful, and were hoping he would be helping them by now with investor presentations to syndicate the deal, the sources added. …

The syndication of the debt could emerge as a major issue for the banks were Musk’s dispute with Twitter to escalate in litigation and they were forced by a judge to fund the deal. In that scenario, they could struggle to get investors to buy the debt if Musk were unwilling to own the company.

That possibility, however, is seen as remote. Most investors are trading Twitter’s stock on the assumption it is far more likely for the company to reach a settlement with Musk or let him walk away, rather than go through protracted litigation.

Honestly an amazing outcome for this deal would be:

  1. Musk is forced to pay $33.5 billion for a company he doesn’t want.
  2. His banks are forced to lend that company $13 billion.
  3. The banks can’t sell the debt and are stuck holding all of that risk.
  4. Musk runs it into the ground.

Who … gets fired there? Like, if the banks end up losing tons of money on this deal, that is bad, and yet it is somehow the kind of money that you are proud to lose as a banker. When the richest person in the world comes to you for a loan, you try to make it work! If he then blows it up out of pique then that’s how it goes.

Elsewhere: “Twitter Reassures Staff on Musk Deal, Sees Vote by Early August.” Well, I’m confused.