Yet another twist for a saga that was not lacking. Multi-billionaire Elon Musk announced on Friday July 8 that he wanted to withdraw from the purchase agreement he had signed to acquire Twitter. But the leaders of the social network do not hear it that way: they immediately announced legal action against the boss of Tesla.
Why did he reconsider his decision? Does he have the right? What can be the legal consequences? Franceinfo comes back in three questions on the volte-face of the billionaire.
1Why is Elon Musk quitting the Twitter takeover?
Elon Musk claims that the social network suffered from a problem of “bots” (robots). According to him, the number of users who are actually machines would be much higher than the maximum of 5% claimed by the social network. It claims, without presenting any evidence, that the share of bots in total users could exceed 20%*, which according to him calls into question the value and economic prospects of the company. In mid-May, he had already suspended negotiations with Twitter for the first time for this reason.
The South African businessman, known for his changing statements and temperament, had however assured on several occasions that one of the objectives of the takeover was precisely to solve the problems of bots.
If our twitter bid succeeds, we will defeat the spam bots or die trying!
— Elon Musk (@elonmusk) April 21, 2022
In recent weeks, the billionaire has therefore requested more and more information from Twitter, officially to support his assertions. He even received access to the “fire hose”, the stream of all the tweets posted continuously on the platform, explains the New York Times*. However, this is not necessarily enough to determine the share of bots: Twitter claims that its estimates are also based on private data such as IP addresses or user phone numbers, according to AP*. But according to Elon Musk’s lawyers, Twitter refused to provide all the data requested for “conduct one’s own analysis” on the number of bots.
others rather put this reversal on the account of “remorse” on the side of Elon Musk, as analyst Angelo Zino of CFRA Research, quoted by AFP. According to him, the price the billionaire was supposed to pay would have become “laughable”. The contract signed by Elon Musk in April provided for a repurchase price at a price of 54.20 dollars per share, but the price of the title has fallen by 20% since April. He oscillated between 37 and 40 dollars from June 7 to July 7. The businessman would therefore find himself paying a much higher price than today.
He was also to secure some of the funding through bank loans backed by his Tesla stock. But their value has fallen sharply in recent weeks, which has reduced the billionaire’s fortune and his ability to raise funds.
2Does Elon Musk have the right to cancel the takeover?
It is not enough that Elon Musk decides to withdraw for the takeover to be canceled. “He signed an agreement that he is legally obliged to respect”has tweeted* Ann Lipton, professor of law at Tulane University.
The contract has clauses to allow both parties to opt out, but they are binding. Elon Musk can, for example, withdraw if Twitter lied in its description of its business model, but only if this lie hides a much worse economic situation than what has been presented (we are talking about“significant adverse impact”). However, if the billionaire’s team is unable to prove its allegations about the number of bots, it will not be able to demonstrate any“significant adverse impact”as explained by Bloomberg*.
Another scenario: if Twitter breaks one of the promises that the two parties have made to each other to carry out the follow-up to the takeover, Elon Musk can even withdraw without significant negative effect. Among the promises in the contract, the social network had agreed to “quickly provide [Elon Musk] all information concerning the business, properties and personnel of [Twitter] which can reasonably be claimed”. This is why lawyers of the billionaire ensure in particular, in a letter to the American stock market policeman*, that Twitter has not respected this commitment, which according to them constitutes a “clear and substantial violation” which allows Elon Musk to “end the deal”.
3What are the possible consequences?
It will be up to the courts to determine whether the reasons given by Elon Musk are valid. The leaders of Twitter have already announced that they are launching legal action against the billionaire, in the American state of Delaware. Twitter can, for example, sue Elon Musk for “damages”, but the social network will only be able to obtain a maximum of one billion dollars in compensation, according to the text of the takeover agreement *.
This is why the leaders of Twitter prefer to force Elon Musk to conclude the takeover in court. The contract contains a “specific performance clause” which allows the social network to force Elon Musk to continue the procedure, even against his will, as long as the banks which must lend him funds can do so, specifies Bloomberg*.
A forced takeover, however, may not satisfy anyone. “Twitter is in worse shape than when it all startedexplains analyst Carolina Milanesi to AFP. But the worst would be if Twitter forces the acquisition to happen.”
“They would end up with an owner who doesn’t want the business, and is full of resentment.”Carolina Milanesi, analyst for Creative Strategies
This is why other analysts believe that the two parties could agree on a lower selling price. “Either the sale price drops 15-20% to bring Elon Musk back into the negotiations, or he will continue to use the bot argument”assures analyst Angelo Zino to NPR *.
* All links followed by an asterisk lead to links in English.