INTRODUCTION
American industrial engineer and entrepreneur Elon Musk was born in South Africa. He co-founded Paypal and SpaceX, a provider of aerospace transportation services. He was one of the company’s initial investors in Tesla, which manufactures electric cars, and he currently serves as its CEO. Musk, holds onto the seventh position with a $70.5 billion wealth in world’s top 10 billionaires. He is also a prolific Twitter user and proposed to buy Twitter. Twitter is the 16th most popular social networking site globally as of July 2021 (ranked by a number of monthly active users). To put it into perspective, 8.85 percent of all social media users worldwide use Twitter.
The proposed takeover of Twitter by Elon Musk has been in the news since April of this year. However, there have been a plethora of developments in the last three months, from Twitter using the poison pill defence to stop Musk from attempting a hostile takeover of the social media site to Twitter suing Musk after he backed out of the $44 billion acquisition proposal. As Twitter and Elon Musk prepare for a lawsuit against each other, here is a rundown of what has happened since the richest man in the world revealed his plan to take over Twitter :
TAKEOVER BID
Towards the end of January, Musk started quietly purchasing shares. He acquired a 5% stake by the middle of March, which required prompt disclosure, but he missed the deadline to notify the US Securities and Exchanges by ten days. Musk then moved on to criticise the social networking site. He tweeted, “Free speech is important to a functioning democracy. Do you think Twitter abides by this concept to the letter? Musk asked Twitter users in another tweet if a new platform is necessary to support free speech.[1]
On April 4, Musk purchased a 9.2% stake in Twitter, making him the largest stakeholder of the micro-blogging site. He had also engaged in discussion with Twitter management regarding a board seat for weeks at the same time he was buying shares. He publicly disclosed his stake on April 4, post which Twitter then offered him a position on the board.[2] He declined the board position on April 9 and tweeted about it the following day. On April 12, investors sued Musk for failing to promptly reveal his stake in the firm and his intentions toward the company.
The following week, on April 14, the Tesla CEO makes an offer to buy the micro blogging platform, valued at $41.39 billion, for $54.20 per share. This represented a 38% premium to the stock’s closing price on April 1, the last trading day before Musk acquired the majority ownership in the company. The proposal was referred to as a hostile takeover attempt, to which the corporation replied that the board will carefully consider the proposal. In the same year, Pennsylvania-based Vanguard Holdings purchased a 10.3% stake in a company, defeating Musk as the largest stakeholder.
On April 16, 2022, Twitter used the “poison pill” defence to counter Musk’s hostile takeover attempt. A poison pill method allows current shareholders to buy more stock at a substantial discount, reducing the amount of equity that a new, hostile investor can acquire. It is officially known as a shareholder rights plan.
On April 21, 2022, Musk raised $46.5 billion in finance to purchase the social media site, and the Twitter board met with Musk to discuss his buyout proposal. Finally, on April 25, 2022, the Twitter board finalised a $44 billion deal with Musk. A regulatory filing stated that Musk sold $8.5 billion worth of Tesla stock to raise money for the purchase of Twitter[3].
In the latest development, Musk suspended the Twitter purchase arrangement indefinitely after bringing up the prevalence of spam-bot accounts on social media sites. Less than 5% of Twitter’s active users, according to him, are spam or false accounts. In a thread, Musk accused Twitter of manipulating its algorithms and declared that the Twitter acquisition would not proceed until the company provided detailed information about bots. To counter this, Twitter then filed a lawsuit in a Delaware court accusing Musk of a long list of violations of the merger agreement that have thrown a cloud over Twitter and its operations.
WHY ELON MUSK WANTED TO BUY TWITTER
Musk is a frequent user of the service but is also one of its loudest critics. In March, Musk urged his followers to vote in a survey about whether they thought Twitter protected free speech. Approximately 2 million people responded to the survey, and 70% of them chose “no,” according to his statement. The First Amendment of the US Constitution protects free expression from censorship by the government, but not from firms like Twitter that have their own policies regarding what is and isn’t permitted on their websites[4].
Musk brought up free speech once more when Twitter announced the deal in April. Along with seeking to make Twitter’s algorithms open source, eliminate spam bots, and verify all users, he also said he wanted to improve it with new features. Some tweets from Musk suggest that he would use his influence on the company to fight against content moderation rules and initiatives to remove users who violate Twitter’s guidelines off the network.
SUGGESTED CHANGES BY ELON MUSK
- Musk has made several important recommendations in a series of tweets for Twitter Blue, a paid monthly subscription that grants access to premium features and customizations. The CEO of Tesla advised that all users registering for Twitter Blue receive an authenticating checkmark that differs from the blue “official account” tick and does not contain any advertisements. Additionally, he claimed that if Twitter depends on advertising revenue, businesses will have a bigger voice in policy via ads.
- For a long time, Elon Musk has been requesting that Twitter provide the Edit option. There is already a three-dot option available next to the tweet. You have a lot of options after clicking on it. Soon the Edit option will be included in the list. Currently, there are discussions about allowing users to amend any tweet within 30 minutes after tweeting it. After that, the edit option won’t be visible. Additionally, users will have the flexibility to totally alter the media that is connected to their tweets[5].
- Elon Musk suggested Twitter to charge some fee. However, this fee is not for public users; instead, in the near future, customers who are commercial or government entities may have to pay a small fee. When any third-party website wants to quote or integrate tweets from verified people or organisations, Musk intends to charge a fee. Therefore, it’s possible that soon, business and government users may have to pay for their tweets.
CONCLUSION
For the past two months, the constant up and downs that have plagued this deal have kept stakeholders across the globe on the edge of their seats. Elon Musk’s repeated claims that Twitter exaggerated the presence of spambots and false accounts on the network is truly alarming for any potential acquisition.
On July 12, Twitter responded to Musk’s withdrawal announcement by filing a lawsuit in the Delaware Court of Chancery, claiming Musk was compelled to complete the deal. There may be several various outcomes of this legal battle. The initial two come from a settlement: Either Twitter changes the agreement to sell the firm to Musk at a lower price, or Musk agrees to pay billions of dollars to be released from the arrangement. There are three outcomes if a case goes forward:
- Elon Musk wins by proving Twitter misled about its user data and that doing so would materially harm his ownership. He is not required to reimburse Twitter for any money spent on the transaction.
- Elon Musk loses and is required, per the terms of the contract, to pay the $1 billion termination fee.
- Elon Musk loses and is compelled to pay $44 billion to acquire Twitter.
This is indeed a major clash with significant consequences for mergers and acquisitions in the future.
[1] Levin, B. (2022, April 26). A Reminder of Just Some of the Terrible Things Elon Musk Has Said and Done. Vanity Fair.https://www.vanityfair.com/news/2022/04/elon-musk-twitter-terrible-things-hes-said-and-done
[2] Rodríguez, A. (2022, April 28). Elon Musk Bought Twitter. What Is Going To Change For Marketers? .Rock Content.https://rockcontent.com/blog/elon-musk-buys-twitter/
[3] Samaddar, D. (2022, April 27). The secret reason behind Elon Musk’s Twitter deal. blog.finology. https://blog.finology.in/entrepreneurship/elon-musk-twitter-deal
[4] Shanor, A. (2018). First Amendment Coverage. New York University Law Review, 93(318). https://www.nyulawreview.org/wp-content/uploads/2018/08/NYULaw-93-2-Shanor-1.pdf
[5] Duffield, W. (2022, April 27). What Can Elon Musk Do with Twitter.Cato Institute. https://www.cato.org/blog/what-can-elon-musk-do-twitter
YLCC would like to thank Dipti Tharwani for her valuable contribution in this article.
