By: Reed Morris
In my articles, I prefer to look at events in the form of a story, however, the disaster that has been Elon Musk and Twitter over the past year or so is something that must be attacked chronologically to fully comprehend. Musk’s decision to buy Twitter for $44 Billion has to be one of, if not the worst, financial decision since the Enron disaster at the turn of the century (see my previous article if you want to know more about Enron). People will lose their jobs, Twitter will crumble, and immense risk has been put on Musk’s other financial endeavors. Such a terrible series of decisions can only be tackled chronologically, so let us start at the beginning.
Musk makes his first investments in Twitter. The exact amount is unknown, but his investing did begin in late January according to documents filed to the Securities and Exchange Commission in the following months.
Musk decides to take control of the company. His share percentage in Twitter reaches 9.2% which is the highest percent holding of any other shareholder. This is when the larger public became aware of the ongoing overtake. At the time, there was uncertainty if he would go further or stop where he was at. As we now know, he continued to buy up more and more of the company.
April was a wild month in the Twitter dealings. At the start of the month, Musk officially disclosed the amount of money he really had sunk into the company. His shares reached a whopping $2.9 Billion. After he disclosed his true involvement with Twitter, shares in the company rose over 27% the day of his announcement.
A day later, Twitter officially announced that Musk would be joining Twitter’s board of directors. He was welcomed aboard in a tweet by now former CEO, Parag Agrawal
Shortly after being invited to the board, he flipped direction and said he would no longer be joining.
Only four days after refusing to join the companies board, he proposed an official offer to buy out the company at $54.20 a share, valuing the company at a laughable $43 Billion. The offer overvalued the company by 38% but he stuck to his guns regarding the price.
Twitter immediately responded with what is called a “poison pill” which essentially devalues shares for current board members allowing them to purchase more, but making it extremely difficult for Musk to purchase the necessary shares to take over. However, this strategy never took full effect as only a week later, Twitter decided to accept Musk’s original offer.
While this feels like a good ending point to the story, it’s just the tip of the iceberg.
In May, Musk buckles down and starts to look at how he would finance such an acquisition. He gathered $7 Billion worth of financing from several investment firms including Sequoia Capital and Binance, a crypto exchange (you’ll hear more about them in the next article.) To fill the $43 Billion price tag, Musk also had to sell $8.5 Billion worth of Tesla Stock, dropping the company’s value ever so slightly.
All throughout May, Musk makes several claims and promises with little to no basis. The biggest of which was the claim that he could increase Twitter’s yearly income four fold, up to over $26 Billion a year.
With hindsight being 20/20, we can now see that was an absolutely insane claim. While during the writing of this article, Musk has not been in ownership of Twitter for long enough to make financial changes, however the business model he seems to be adapting to is currently losing more money than before he bought the company.
Musk, soon after making these claims, and presumably finally doing research, he quickly realized he made a mistake. He quickly announces that the deal would be on “temporary hold”, the reasoning of which, Musk claims, was the supposed prevalence of bot and spam accounts on the platform.
Not long after he announced a temporary hold on the deal, a Reuters report surfaced claiming that less than 5% of the accounts active on twitter were bot or spam accounts. Musk requested more information but seemingly never received it.
Only hours after announcing the deal’s stallings, he announced that he once again had changed his mind and was going through with the deal.
The Twitter excitement slowed down in volume but exploded in intensity during the summer months, so June, July and August will be grouped together for continuity’s sake.
Musk once again jumps back on an old train and demands that Twitter supply more information regarding the possible prevalence of bots. This time, he threatened a full retraction of contract and claimed he would no longer buy the company per the deal he signed.
After the Twitter board essentially said, “You know all we know and what we know is the truth,” Musk still moved to terminate the acquisition.
On July 12th, 2022, Twitter sued Elon Musk in a Delaware Chancery Court. They sued on the basis that Musk knowingly breached his contract and that Musk must follow through with his deal.
With tens of billions of dollars, several massive companies, and gargantuan investment firms involved, the outcome of the court case would have extreme ramifications no matter which way it sways.
The court date would be set for late September, later stalled for mid October.
October 4th, 2022
Musk finally agrees to follow through with the deal, and to acquire Twitter at the original stock price.
October 28th, 2022
Elon Musk officially becomes the new private owner of Twitter.
In theory, Elon Musk can afford this whole Twitter debacle, however on paper, things are much different. The aspect of this that scares me so much is the fallout it could have on his other businesses and ventures. While I am not a fan of Elon Musk himself, the engineers and scientists he employs at Tesla and SpaceX are doing truly spectacular work.
In making this $43 billion deal, Musk put a lot of risk on his other businesses. Tesla stock is the main collateral involved in all of his extensive loans, and SpaceX bends at the will of his other enterprises. The question is not if Musk can keep Twitter from collapsing, it is merely if he can make it profitable, and how fast. The interest on his loans float around a billion dollars a year and if the economy faces more struggles or Elon can’t pay it all back, there will be serious ramifications.
Musk put everything on the line for this passion project, and we will see in the coming months and years how it all turns out. If in the next 15 years Tesla and Elon Musk are forgotten or infamous names, then he failed. But if Elon Musk is still kicking and Tesla’s are still zooming around, and Falcon Heavies are finally taking people to Lunar bases, then maybe this whole Twitter debacle turned out alright. As we can’t see into the future, all we can do is buckle up, keep your arms and feet inside the ride, and let’s watch some more billionaire drama unfold.