This is the kind of budgeting decision one would expect from a teen with a first-time job and not the world’s wealthiest man. From the very beginning, when Musk said it “sounded unfair” to kick people off for being conservative to buying a nine percent share, to the takeover offer, it all felt like an impulse buy from someone with plenty of money to cover it, but with little of it thought through. Now that Musk has had time to think things through (Buffet would’ve evaluated the investment for a year), he wants out. He’s trying to pump the brakes and pull back. But it will cost him far more than the one-billion-dollar kill fee in the deal and that’s on the assumption he has that option.
First, here’s the cover story, what one sees from the outside. From the Washington Post:
Elon Musk said Tuesday his $44 billion bid to buy Twitter “cannot move forward” until the social media company’s CEO shows proof that less than 5 percent of the platform’s users are fake.
The Tesla chief executive’s tweet comes a day after he said he might try to renegotiate to pay less and accused Twitter of potentially misleading him about the percentage of fake accounts on the website, in the clearest signal yet that he could seek to exit the deal.
At a conference in Miami on Monday, Musk said a lower price was not “out of the question,” the latest indication that he may be distancing himself from his initial $44 billion offer, which was announced April 25.
Proving bot numbers and real accounts is all part of the valuation, which is a key due diligence step in normal acquisition. The fact that Elon is acting like this is some Twitter failure that he couldn’t have foreseen is a bit much to swallow from the teen… world’s wealthiest man.
Now the problems in diving out. Elon cannot say, “I changed my mind” and pay one billion. According to CNBC:
Musk and Twitter agreed to a so-called reverse termination fee of $1 billion when the two sides reached a deal last month. Still, the breakup fee isn’t an option payment that allows Musk to bail without consequence.
A reverse breakup fee paid from a buyer to a target applies when there is an outside reason a deal can’t close, such as regulatory intermediation or third-party financing concerns. A buyer can also walk if there’s fraud, assuming the discovery of incorrect information has a so-called “material adverse effect.”’
In other words, to even have the privilege of paying the one billion kill fee, Musk now has to do the due diligence he should’ve done all along and look into the Twitter fundamentals he should have used prior to valuing the share price. But the burden of proof is on Elon to prove that there exists significant discrepancies in the filings versus reality, while Elon’s tweet seems to believe it is Twitter’s job:
20% fake/spam accounts, while 4 times what Twitter claims, could be *much* higher.
My offer was based on Twitter’s SEC filings being accurate.
Yesterday, Twitter’s CEO publicly refused to show proof of <5%.
This deal cannot move forward until he does.
— Elon Musk (@elonmusk) May 17, 2022
His offer was based on whatever work he put into the offer. He needed to verify the accuracy prior to making the offer. Now Elon has to prove that the filing is wrong to a significant degree, 20% would certainly fit, but that’s on Elon and only then is he qualified to pay the one billion dollar kill fee.
Behind the scenes, Elon’s primary problems go well beyond Twitter’s bot number and over-valuation of Twitter. Elon’s wealth is disproportionately based on his Tesla stock ownership which nosedived on the news and has yet to recover, costing Musk far more than the $44 Billion, and the Tesla loss represents value gone to the ethers of market cap and not in new investment.
Second, as the readers have surely noticed, cryptocurrency is in a global-depression level crisis, threatening to “disappear” $1..7 trillion in wealth, and Musk was heavily involved in the cyrpto-market. Granted, the crypto crisis didn’t fully fall through until Elon had made his offer.
But to summarize, Musk doesn’t get to write a billion-dollar check and walk away, or he most certainly would have done so at this point. He would likely have made up that same billion by the ending of trading in rising Tesla stock. No, now the onus is on Musk to put Twitter through the paces and prove that the filings aren’t correct. It is not Twitter’s job. (Though Twitter would love to be able to prove the 5% figure is accurate right now and take advantage of the price offer but likely can’t.)
Musk’s pompous tweet is typical Musk and typically teen. Point fingers at someone else when the only person to blame for his reckless offer is himself.
Meanwhile, Musk has also done permanent damage to his reputation by coming out of the MAGA closet to prove he is not some centrist looking only for reasonable discourse. Now, he personally described himself as now on the MAGA side of the middle and very much acted the part, taunting others in that classic faux tough-guy talk that is the essence of the MAGA movement. He can never get that back. The total cost of his folly cannot be known but it will end up being far more than one billion dollars and he won’t have his shiny new toy, either.
Jason Miciak believes a day without learning is a day not lived. He is a political writer, features writer, author, and attorney. He is a Canadian-born dual citizen who spent his teen and college years in the Pacific Northwest and has since lived in seven states. He now enjoys life as a single dad of a young girl, writing from the beaches of the Gulf Coast. He loves crafting his flower pots, cooking, while also studying scientific philosophy, religion, and non-math principles behind quantum mechanics and cosmology. Please feel free to contact for speaking engagements or any concerns.