20221005 Elon Musk
The future of Twitter is clearly going to be different once Musk fully takes the reigns. Image Credit: Reuters

This was a union waiting to be made. Elon Musk is one of the world’s most high profile business magnates and investors, and the richest man on the planet. Twitter is the hugely influential social media platform, widely used by politicians, world leaders, journalists and businesses, to share comment and opinion.

After more than half a year of back-and-forth, Musk has now offered to complete his proposed $44 billion acquisition of Twitter — in a major U-turn on his decision to walk away from the deal. Tesla CEO made the dramatic announcement in a letter to Twitter that the company disclosed in a filing Tuesday with the US Securities and Exchange Commission.

$44b

Musk’s bid to buy Twitter — which the firm agreed on

The development comes less than two weeks before a trial between Musk and Twitter is scheduled to commence in Delaware. Twitter said it received the letter and intends to close the deal at the agreed-upon price. Shares of the social media platform quickly rose as news broke but there was alarm too in some quarters, with rights groups worried about what kind of free speech would flourish on Twitter under Musk’s vision.

Why did Musk want to buy Twitter in the first place?

Parag Agrawal

In April this year, Musk announced his intention to buy Twitter for about $44 billion ($54.20 per share). A long-time Twitter user with more than 100 million followers, the Tesla CEO revealed in an April 4 regulatory filing that he aims to close the deal. Twitter shares soared, Musk got a seat on the board, and Twitter CEO Parag Agrawal called him “a passionate believer and intense critic of the service”, saying it was “exactly what we need”.

$54.20

per share — that’s what Musk will end up paying

What happened next?

True to his mercurial nature, Musk did a volte-face, deciding against joining the Twitter board. He alleged that the social media giant failed to provide enough information about the number of fake accounts it has. Musk grounded his argument on the allegation that Twitter vastly misrepresented how it measures the magnitude of “spam bot” accounts. In July, Musk announced that he was terminating the deal, citing the continuing disagreement over the number of spam accounts.

How did Twitter respond?

Twitter promptly sued Musk for violating his acquisition agreement. In response, Musk countersued Twitter. The case is Twitter v. Musk, 22-0613 in the Delaware Chancery Court (Wilmington). As the two sides presented evidence before the trial, the judge appeared to focus narrowly in line with the court’s mandate: on the merger agreement between Musk and Twitter, and whether anything had changed since it was signed in April that would justify terminating the deal.

What explains Musk’s U-turn?

In addition to the trial looming and his scheduled deposition, Musk faced a ticking metre of potential rising interest costs. If he lost the trial, the judge could not only force him to close the deal but also could impose interest payments that would have increased its cost. Under the terms of the merger agreement, Musk could escape the deal by paying a $1 billion break-up fee if the bank financing falls through but subject to the condition that he would not sabotage the financing himself. With the new unfolding development, it is pertinent to note that the deal isn’t done yet, and there are legal hoops yet to be jumped through. Given Musk’s track record and volatility, it would be a mistake to assume that we have heard the last on this one.

$1b

break-up fee if bank financing falls through

How will Elon Musk pay for Twitter?

Musk said he had secured loans from banks for about $25.5 billion. He’d pay the rest, he said in an SEC filing, with an equity commitment of $21 billion. That presumably means the entrepreneur would use parts of his stake in electric car company Tesla. Musk is currently worth about $270 billion, according to Forbes, but much of his money is tied up in Tesla stock. Musk regularly uses his Tesla stake as collateral for loans.

What happens to the court case?

Both sides had been gearing up for a lengthy and public showdown at the Delaware Chancery Court. Musk had been buoyed by whistle-blower revelations that portrayed Twitter as cavalier with its bot counting and lax on security. The social media major, however, believed the agreement it had with Musk was watertight.

After Musk’s latest revelation that he had agreed to close the deal at the price he had initially offered, things are likely to change. There is a belief that Musk realised he was not going to win the trial and decided to save himself the day. The potential of a major courtroom showdown has now receded.

Where does Twitter go from here?

The future of Twitter is clearly going to be different once Musk fully takes the reigns. Earlier this year, he noted that he wants the social media company to reach 1 billion daily active users and make the company profitable. That is easier said that done.

Despite its outsize influence, Twitter has a userbase of only 300 million monthly active users. Musk has said he wants Twitter to be more like TikTok and WeChat, with many more highly engaged users. The Tesla CEO has implied that layoffs were likely in order to bring down Twitter’s costs, which currently exceed revenue. The microblogging site employs 8,000 employees at present.

Twitter probably accelerates X by 3 to 5 years, but I could be wrong

- Elon Musk | Tesla CEO
The future is ‘X’ — the everything app
In his tweet on Tuesday, Musk said the acquisition of Twitter would be an “accelerant” towards creating “X”, which he said would be the ‘everything’ app. The latest from the Musk stable — an ‘everything’ app is being likened to a ‘super app’ which incorporates several services including messaging, social media, payments and food orders — a first of its kinds. Tech watchers say that the Tesla boss wants to build a multipurpose platform that is a one-stop shop — something that will make life easier and hassle-free for end users. It could be on the lines of the Chinese WeChat — that is sometimes referred to as Facebook, Twitter, Snapchat and PayPal rolled into one. “Twitter probably accelerates X by 3 to 5 years, but I could be wrong,” Musk wrote on Twitter.