Elon Musk Must Not Bail on Twitter Deal

E ven as Elon Musk has finalized the deal to buy Twitter, he faces a new set of challenges — financial and legal — before he can acquire the company. The risks to the deal’s failure are acute, especially since many want to see it happen. Nevertheless, he must persist.

Immediately, though, Musk seems to have encountered buyer’s remorse. On May 13, he tweeted that the deal was on hold, claiming that up to “20 percent” of Twitter users were “fake/spam” accounts. He accused Twitter of lying about this on its SEC filings, where it claimed the number was under 5 percent. Twitter’s stock thereafter declined to a low close of $37.39 on Monday, well below Musk’s offered $54.20. That Twitter attempted to silence Musk’s statements by invoking their nondisclosure agreement — which, apparently, covers fake accounts — is a worrying sign of a company with something to hide.

This affects Twitter’s valuation in the deal, of which Musk is well aware. On the business side, Twitter had not been a profit-making company in any of the nine years since it went public. Speaking with National Review, the managing director of a major Wall Street investment bank — asking not to be named given the bank’s large stake in Twitter — had expectations of the company’s future performance. “My analysts forecasted even worse stock prices for Twitter this quarter,” he admitted. The Twitter board’s turnaround strategy to raise them, he claimed, was “not working” due to poor execution atop the company. “It was at least one to two years out,” he claimed. But for Musk’s offer, Twitter’s stock would have further declined. It’s why, after initially invoking its “poison pill” to stop Musk, the board unanimously relented. No good other options were available.

Should there be a large number of “bots” on the platform, Musk may be inferring that Twitter is less of a digital public square than it seems. In real terms, Musk’s bot figure of “20 percent” amounts to over 60 million users. It’s quite damaging from a business perspective. A potential subscriber market that’s 20 percent smaller is a huge reduction for a company whose margins are already tight.

The reason Musk decided to buy Twitter, however, was not to make a profit, but to support free speech. Regardless of the number of “bots” on the platform, Twitter is at the converging point of media, political, business, and cultural interest — where opinion is shared and read. As Twitter is a major conduit for public discourse, ensuring that it is well run and uncompromised by bias is essential. Musk’s wealth and skill set uniquely equip him to take on this responsibility, and to do it well. Given that the leadership atop the company now — CEO Parag Agarwal being the key villain — won’t defend free speech but will cave to woke employees, Musk must ensure Twitter is purchased, if only to pry it from their clutches and save free speech.

To make the company profitable, Musk has suggested that Twitter transition to a subscription-based service that gives paid users extra perks (e.g., the ability to edit tweets and the coveted “blue check” of account verification). These are tolerable, so long as they don’t affect nonpaying ability to tweet and reading other tweets.

Some have suggested that the rationale for Musk’s complaints is to reduce the price of buying Twitter. Even though Musk made a premium bid of $54.20 a share (per current prices, around 37 percent above value), one must assume he’d like to pay as little as possible. Hence, Musk’s accusation of “bots” on Twitter may be to set up the basis for renegotiation with the Board. Under the terms of his deal, neither Musk nor Twitter’s board may legally withdraw; failing to proceed would be a “breach of contract.” Should Musk decide to withdraw, Twitter could, and probably would, take him to court — where he’d either pay a $1 billion termination fee or, per our banking source, be “forced to buy the company” by a federal judge at considerable expense. Musk’s “bots” accusation is a confounding factor in this scenario. It offers him a pathway to accuse Twitter of perfidy with a false disclosure, void his contract, and exit without the termination fee — an outcome Twitter’s board desperately wishes to avoid. That may prompt its members to renegotiate. Whether or not this is Musk’s business strategy, he must follow through.

Even if the present agreement with Twitter stays, however, Musk will still have to secure regulatory approval from the SEC before shareholders formally vote. Musk has had an acrimonious relationship with the SEC. In 2018, after Musk tweeted plans to take Tesla private at $420 a share — later abandoned after he couldn’t secure financing — the SEC charged him with securities fraud. Musk settled the case, but on bruising terms: He was personally fined $20 million, removed as Tesla’s chairman, and can now no longer tweet about Tesla without lawyers reading the drafts. Though the SEC’s reviews in such deals are mere formalities — as our source claimed, they “just help shareholders know what they’re voting on” — there’s every expectation that Musk will face more scrutiny than normal. The approval is already expected to take six months, longer than is typical for most major acquisitions. The bureaucracy should not deter Musk, but he must avoid the temptation to pick fights with the SEC over past grievances. Twitter is more important.

Then there’s the related danger of political interference in the deal. No bureaucracy is immune to it. And in this case, a Twitter that is profitably free of censorship is an electoral threat to Democrats, whose media dominance has afforded them a political advantage in shaping public perceptions. Banning @realDonaldTrump, who upended their hegemony by reaching voters through Twitter, was one of their long-time goals. The ban would likely be reversed if Musk were to take the helm. So it wouldn’t be surprising if the Democratic apparatchiks in the SEC and regulatory agencies attempt to stop the deal. Though our banking source claims that, from Wall Street’s perspective, this would make America a “banana republic,” we as a country have seen far worse from civil servants against conservatives over the last few years, the FBI’s use of the Steele dossier being the biggest abuse. Musk himself has warned of a “dirty tricks campaign” against him as the deal proceeds. The SEC’s recent announcement that it is “investigating” Musk’s initial purchase of Twitter shares, citing “irregularities” in the process, could be the first of these steps.

Should the attacks step up, Musk should not be deterred by their intensity. Politics is unforgiving, but the fight to acquire Twitter is worth the trouble. The road ahead will not be easy. Then again, as conservatives know well, defending free speech has never been easy. Musk has bested many challenges before as a businessman and succeeded. For free speech’s sake, he must persist.