Musk Plays Twitter: Cat and Mouse Are Hard to Escape

Musk treated Twitter like a cat-and-mouse; first calmly lurking, then suddenly attacking, then fiddling back and forth, and finally swallowing it completely.

It only takes Musk three months to win the world’s most influential social network. At the end of January, it quietly acquired a 9.2% stake in Twitter and became the largest shareholder of the latter; at the end of March, public opinion warmed up and publicly criticized Twitter for its many problems. In early April, he announced his shareholding ratio, which triggered various speculations in the market; in mid-April, he rejected the invitation of Twitter’s board of directors and directly made an offer for acquisition. After Twitter’s board rejected it with a poison pill, Musk took advantage of shareholder dissatisfaction with the board to force the non-voting board to finally accept the offer in just one week.

Just when the outside world thought that Twitter was his own and began to look forward to many product and policy changes after the acquisition, Musk shot another carbine, which surprised Twitter investors.

The world’s richest man took to Twitter this morning, announcing that his $44 billion acquisition of Twitter is on hold until he can confirm whether Twitter bots and fake accounts really only account for 5% of Twitter’s total users. One stone caused a thousand waves, and the market speculated whether Musk wanted to abandon the deal.

This speculation is not groundless. Tesla’s stock price has continued to plummet in the past few trading days. Among them are the factors that the U.S. stock market fell, as well as investors’ concerns that Musk himself is not paying enough attention. Musk’s main assets come from Tesla, whose stock price fluctuations directly affect his personal wealth and also drag down the amount of his mortgage with Tesla’s shares.

It was previously rumored that after Musk acquired Twitter, he planned to serve as the interim CEO for a period of time, urging Twitter to adjust its product business. Tesla investors can’t help but worry: Musk, who has a full schedule, and now has to take into account the transformation of Twitter, how much time does he have for Tesla’s long-term development?

As a master of time management, Musk is currently the CEO of both Tesla and SpaceX, as well as two startups, Boring Comany and NeuroLink.. His private jets fly intensively between Fremont (Tesla’s Silicon Valley factory), Los Angeles (SpaceX’s headquarters), Austin (Tesla’s headquarters and Texas factory), and Brownsville (SpaceX’s Texas launch site).

So after Musk’s tweets about suspending acquisitions, the two companies’ stock prices reacted like a knee-jerk: Twitter’s stock plummeted 20%, while Tesla’s stock surged as much as 8% during the session. Clearly, Twitter investors were frustrated and Tesla investors were pleasantly surprised.

Musk came to Twitter’s San Francisco headquarters on Friday to meet in secret with Twitter’s management and board of directors to discuss Twitter’s business and the progress of the transaction. The meeting was not announced to the public. But ElonJet, which tracks the whereabouts of Musk’s private plane, showed that Musk’s private plane took off from San Jose, the southernmost part of Silicon Valley, and landed in San Francisco that day. It flew for 9 minutes and traveled 50 kilometers, apparently to participate in the Twitter conference.

This trip also brought a lot of criticism to Musk. There are also many people on Twitter who questioned Musk: He shouted about environmental protection and emission reduction every day, but he was not interested in doing it at all. He even had to take a private jet for 50 kilometers. What is the meaning of environmental protection. However, Gates also faces the same doubts. Maybe billionaires’ time is too precious to wait.

Just two hours later, Musk suddenly tweeted that he was still committed to the acquisition of Twitter. This tweet led to a narrower decline in Twitter, and Tesla pared its gains slightly. In the end, Twitter closed down 9.7%, and its market value is less than $32 billion. Tesla shares closed up 5.7%, with a market value of nearly $800 billion.

So, is what Musk said about the Twitter bot water army problem true? Could he walk away from the Twitter deal?

Of course there is the issue of the navy. Almost every social media platform has a large number of fake accounts registered by machines, and Twitter is no exception. Musk has repeatedly criticized the existence of a large number of robot navy accounts on Twitter last year. When he made an acquisition offer, he also promised that he would focus on solving this problem after completing the acquisition.

However, Twitter did not hide the problem. The data Musk cited came from Twitter’s report to the SEC, in which Twitter said, “Based on an internal assessment of sample accounts, bot fake accounts accounted for less than 5% of the platform’s monthly activity during the quarter, but this figure is based on an internal assessment of sample accounts. Based on an internal assessment of a sample of accounts, this estimate may not accurately reflect the true number of such accounts, and the number of bot fake accounts may be higher than expected.” And, Twitter began with its 2013 IPO prospectus Express it like this.

In other words, Twitter has already announced its estimated proportion of robot navy. Perhaps Musk believes that the proportion of Twitter navy is far more than 5%, and its information disclosure is seriously inaccurate. But he knew about the problem when he signed the acquisition agreement, and now he has not produced new evidence to support his reasons.

Why did Musk suddenly talk about navy users? Is he going to back off?

More than a month after he disclosed his Twitter holdings, Tesla’s stock price fell by nearly a quarter, plummeting from $1,145 to $728 yesterday. Of course, this is more because the overall decline in the U.S. stock market, the high risk aversion of investors, and the selling of stocks that have risen too high before, Tesla is not immune.

However, Tesla’s decline more than the Nasdaq was also directly linked to Musk’s acquisition of Twitter. Investors are worried that Musk can’t focus on Tesla’s business, and they are more worried that Musk will continue to sell Tesla stock to cash out in order to raise funds for acquisitions. In the past six months, Musk has sold Tesla shares to cash out more than $20 billion.

On the other hand, the decline in Tesla’s stock price this time also means that Musk’s personal worth has shrunk by more than $30 billion. He owns 17% of Tesla, which is Musk’s most important asset component. The slide in Tesla’s stock price has also meant that Musk has less money to use for mortgages.

In order to reduce his investment ratio and leverage risk, Musk has been actively contacting investors and has received $7.1 billion in financing, both from Sequoia Capital, Andreessen Horowitz and other VCs, as well as from the founding of Oracle. Ellison, Binance founder Changpeng Zhao and other super-rich partners. After the financing, Musk’s share of Tesla’s holdings as collateral has also been reduced from $12 billion to $6.25 billion.

However, Twitter’s stock price is also falling sharply, and the current market value is not even $32 billion, and it is getting farther and farther away from Musk’s offer of $44 billion. Investors are also concerned that Musk may change his mind, as it means he will pay a higher premium.

So, could Musk really give up on buying Twitter? Unlikely, he has signed a $44 billion acquisition agreement with Twitter’s board of directors, which is legally binding. If he abandoned the acquisition, he would have to pay a breakout fee of $1 billion. Twitter could even sue, asking a court to force him to complete the deal.

There is legal precedent for this, and for the same reasons as Musk. In January 2001, Tyson Foods, the largest chicken supplier in the United States, planned to expand its business and reached an agreement to buy beef packaging plant IBP for $3.2 billion. But just a month later, Tyson announced it was temporarily delaying the deal because of problems identified in an IBP audit. Problems do exist, and the U.S. Securities and Exchange Commission (SEC) has launched an investigation into IBP. But Tyson Foods immediately announced that it would abandon the acquisition, citing that there was no trust between the two companies.

The abandoned IBP suffered heavy losses in its share price. The company then filed a lawsuit in a Delaware court, claiming that Tyson Foods had been informed of the issues when it signed the acquisition agreement, and asked the court to force Tyson Foods to complete the acquisition. In the end, the court accepted IBP’s argument, holding that the acquisition agreement signed by the two parties was legal and enforceable, and Tyson Foods had been informed of the risks at the time, and ordered Tyson Foods to complete the transaction. More than two decades later, IBP is now the pork and beef subsidiary of Tyson Foods.

It is unlikely that Musk will give up on the acquisition of Twitter, but he may find a reason to force the Twitter board to lower the offer again. After all, Twitter’s stock price has fallen sharply over the past month, getting further and further away from his $44 billion offer. Perhaps the navy bot was an excuse for him to pressure Twitter’s board.

On the other hand, the Twitter board also has good reasons not to buy Musk. According to the acquisition agreement they signed with Musk, Musk agreed not to tweet negatively on the public platform until the acquisition was completed.

But Musk, who went his own way, apparently did not take this limitation seriously. Last week, he put significant pressure on Twitter’s general counsel, who was directly responsible for the decision, by publicly retweeting major negative news critical of Twitter’s efforts to limit the spread of Biden’s son’s notebook scandal during the election. This week, he publicly attacked Twitter’s robot water army again, and even if Twitter had disclosed information before that, Musk was not the first to know about the problem.

On Twitter, Musk has flouted almost the same rules as former President Trump. In 2018, he publicly announced on Twitter that he would privatize Tesla for $420, resulting in heavy losses for Tesla shorts. Afterwards, the SEC investigation found that he did not get financing guarantees. This tweet was seriously inaccurate.

Under the threat of prosecution by the SEC, Musk finally agreed to a settlement agreement, paid a fine of $20 million, resigned as Tesla chairman, and agreed that tweets involving major company transactions needed to be pre-reviewed by legal counsel. Although the American media has regarded the settlement agreement as a leniency from the SEC, Musk is still very dissatisfied with it, believing that his freedom of speech has been restricted, and decided to sue for the revocation of this tweet restriction. Of course, this claim was directly rejected by the court.

In the process of acquiring Twitter, Musk also had information disclosure violations. According to SEC regulations, when he holds more than 5% of Twitter’s shares, he must submit disclosure documents, but Musk did not disclose it until 11 days too late. In view of the fact that Twitter’s stock price rose 30% after he disclosed his shareholding, Musk disclosed 11 days later, which is equivalent to enjoying a low price discount of 11 days. This “delayed disclosure” led to another SEC investigation and investor lawsuits for Musk.

Judging from today’s Twitter, Musk has no intention of being cautious in his words and deeds on Twitter. The richest man in the world can do whatever he wants.

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