Posted By: Rajan Laad
When Elon Musk announced his $44 billion takeover bid to Twitter, it caused celebrations and meltdowns in equal measure.
Conservatives and libertarians, who have been the recipients of step-motherly treatment on Twitter owing to its overwhelming liberal bias, hoped Musk would liberate the platform into a haven for free speech.
Liberals feared losing control over a primary tool of communication and manipulation. Hence, Twitter employees staged walkouts. MSNBC said that Musk’s takeover would have ‘massive, life and globe-altering consequences’. The New York Times and the Washington Post scurrilously attacked Musk.
There were a few commentators of perspicacity who urged cautious hope over blind optimism.
Some financial experts said that the price tag of $44bn was much more than Twitter’s actual worth.
The fact remains that despite its impact, Twitter has struggled to generate revenue like Facebook or TikTok. This is because Twitter hasn’t been able to seamlessly embed adverts and other money-generating tools into its app.
Twitter was founded in March 2006 but became profitable only towards the end of 2017. The road has continued to be bumpy despite the profit. Twitter lost $221 million in 2021. Twitter also revealed last month that it had suffered a first-quarter loss and that it has ‘accidentally overstated’ its number of users since 2019.
This is why investors kept their distance from Twitter’s stock. Prior to Musk’s hostile takeover bid, Twitter’s stock was worth 12 % less than what it was priced when the firm went public around eight years back.
Last month, the news of Musk becoming Twitter’s largest shareholder, owning a 9.2% or $3 billion, triggered a rise of more than 27% in the company’s stock price.
Just when things had settled down, there was another twist to the tale.
A few days back, Musk caused another frenzy across social media platforms and in financial markets when he announced that his takeover bid was “temporarily on hold”. He cited numerous fake accounts on social media sites as the reason.
There are a few possible explanations behind Musk’s sudden move.
Perhaps Musk realizes that his initial bid was too high and is attempting to compel Twitter to return to the negotiating table in order to lower the price. Legal experts say Twitter’s board would risk being sued if it agreed to a lower price without serious justification.
Another possibility is that Musk is looking for a way out.
It must be remembered that the stock of Tesla plummeted by 7% when Musk announced his Twitter takeover. Perhaps Tesla’s Board of Directors was not pleased that Musk plans to finance his Twitter takeover by borrowing against the value of his holdings in Tesla. Perhaps the Tesla Board thinks that Musk would become a divisive figure that hurts the Tesla brand if he took over Twitter. Maybe they pressured Musk to withdraw?
Musk experienced what it feels like to be in the eye of the storm since his take-over announcement in April. For a month, some of the worst epithets known were conferred upon Musk. Musk understands that as an investor and a businessman getting along with people of all ideological and political persuasions is essential.
Musk has seen how President Trump has been baselessly subjected to legal scrutiny and government investigations for merely challenging the status quo. The Securities and Exchange Commission is already investigating Musk over alleged tweets that could influence Tesla’s share price without permission from a company lawyer. The SEC is also investigating Musk’s delayed disclosure of his large stake in Twitter.
Perhaps someone in Washington privately warned or threatened or advised Musk to stay away. Perhaps Musk himself wants to go back to focusing on Tesla and his space programs instead of needless hassles? Or perhaps now that Twitter’s books are fully open to inspection by Musk’s accountants and lawyers conducting his due diligence investigation, he has uncovered data that raise questions about the accuracy of the information provided to him and the public.
But a withdrawal wouldn’t be without challenges. Twitter could also sue Musk for breach of contract if he walks away without . Musk and Twitter agreed to a ‘ termination fee’ of $1 billion when the two sides reached a deal last month. But this fee won’t allow Musk to escape without consequence.
There have been some unlikely explanations too.
Some have attributed Musk’s sudden move to the launch of President Trump’s Truth Social. Truth Social was founded to offer its users total freedom of expression, it has consequently diminished the value of Twitter. Truth Social is at the top of Apple Store downloads.
Perhaps Musk expects the value of Twitter to plummet further due to Truth Social and hence wants to withdraw? But Truth Social was announced much before Musk’s Twitter bid. Perhaps Musk underestimated the popularity of Truth Social? It seems most unlikely.
Some have called it a publicity stunt. It is unlikely that Musk would indulge in P.R. which likely costs him $1 billion.
Whether Musk could walk away is probably a matter for the courts to decide.
To be fair, fighting fake accounts and making its algorithms open source has been a cornerstone of Musk’s Twitter bid. Maybe this isn’t a delay tactic, but Musk is uncovering relevant data as he and his representatives do their due diligence.
This question will be resolved in time.