Elon vs. Twitter

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Elon Musk has about $7 billion of equity commitments from his friends, crypto exchanges, Middle Eastern funds, etc., to join his deal to buy Twitter, and there is some uncertainty about whether those people will actually kick in the money or whether Musk will have to cover their checks. My rough assumption is that (1) those people probably could get out of their commitments, since Musk terminated the deal three times, so it’s a little tough for him to argue that it’s still binding on them, but (2) they probably won’t, because they signed up for the deal based mostly on blind faith in (or desire to be close to) Musk, and nothing about that rationale has really changed. Here is a counterargument though:

“We’re all trying to get out of it, to be honest,” said Andrea Walne, a general partner at Manhattan Venture Partners.

MVP committed to invest in the deal earlier this year, but a question remains as to whether the firm and others will actually be on the hook for the full amount they committed to, according to Walne. “We talked to the other investors, everyone’s trying to get out of it, no one thinks the company should be valued at $44 billion,” she said.

Citing the sharp downturn in equity markets over the last 6 months, Walne said she would put the value of Twitter at this point closer to $10 billion to $12 billion, a far cry from the $44 billion that Musk has agreed to pay.

Look selfishly I am hoping that some of them back out and he sues them, arguing that in fact the deal was never terminated and Twitter is still worth $44 billion. That would be a great continuation to this story. But, no, my assumption is that most of them won’t back out (to avoid offending Musk), but if they do he won’t sue them (because it’s not worth it). But I confess that I don’t understand this strategy. If you go around telling journalists on the record that you’re trying to get out of it, then you are offending Musk! But you might still send in the money, for a deal you hate! The move is to say nothing and not send in the money.

Elsewhere, the Information reports that “Musk Will Have Absolute Control Over Twitter, Documents Show”:

Elon Musk may be relying on outside investors to help finance his $44 billion purchase of Twitter. But that doesn’t mean he’s giving those investors a say in how the company is run.

A shareholders’ agreement prepared by Musk’s lawyers for equity investors shows that Musk will retain absolute authority over key decisions. He will have “sole discretion” to decide whether to pursue a sale of the company, an initial public offering or some other refinancing transaction involving the business, for instance. 

Yeah I can’t imagine doing it any other way. He’s putting in the majority of the equity check, it was his idea, and he’s Elon Musk. Nobody signed up for this deal planning to supervise how Musk runs Twitter.

And Matt Yglesias notes that Musk’s ties to China (in his role as the head of Tesla Inc.) might make it hard for him to run Twitter on “free speech” lines:

Does this mean that a Musk-run Twitter is going to impose China-friendly censorship as heavy-handed as the self-censorship Musk practices in his personal commentary? That he’s going to turn it into a China-free zone the way that Apple has with its content business?

“Probably not,” he answers, but the worry seems fair:

What does Twitter do once it’s owned by the CEO of a major industrial brand? I don’t know, but I wish the reporters on the Musk beat would ask. And frankly, I wish Congress and the FTC would, too.

The problem is, what do you do about it? You could imagine a world in which the US government had some sort of regulatory apparatus for social media companies that:

  1. Had some rules about how they treat content; 
  2. Had a regulatory agency that wrote and enforced those rules;
  3. Had pre-merger review that could approve or reject acquisitions based on the suitability of a new owner, or could extract conditions (“You can run Twitter, but you can’t censor content on behalf of China”) for approving an acquisition.

There are regimes sort of like that for other industries — if you want to buy a casino, gaming regulators will take a hard look at your personal qualifications — but social media rose to prominence in a deregulatory age, plus, can you imagine how this system would actually work? (Would the Federal Social Media Agency require Twitter to ban anti-Semitic tweets, or require it to allow them?) And so in practice Musk’s acquisition of Twitter got reviewed mainly for antitrust concerns, and there were none, so it was quickly approved. I wrote back in April:

It is not in a heavily regulated industry, and there’s no particular antitrust problem with Musk acquiring it. “World’s richest person acquires the main venue for public communication” does seem like the sort of thing that ought to raise regulatory concerns, but in our actually existing system I’m not sure what those concerns would be. 

I mean, I can see the concerns that it raises, but not the regulatory concerns.