FP ExplainersOct 06, 2022 14:36:58 IST
Elon Musk took everyone by surprise when he offered to buy Twitter, again for his original offer, after trying to get out of the deal he proposed earlier this year. What is more surprising is the timing of Musk’s second offer, especially when you consider the allegations That Musk has been making against Twitter, of falsifying data on fake accounts and misrepresenting the actual number of daily active users.
Professor Robert Miller, who holds a key position as a chair in corporate finance and law at the University of Iowa College of Law believes that Musk and his team might have realised that the case they have against Twitter is very weak and in all likelihood, if the trial goes on to a verdict, Musk will lose.
Musk tried to get out of the deal initially by claiming that Twitter lied in its estimate that less than 5 per cent of its daily active users are spam or fake. But his claims seemed to have no solid proof, and with the scheduled trial less than two weeks away, Miller says Musk and his lawyers probably finally realized his case couldn’t be won in court.
Musk’s offer to buy Twitter again is actually conditional. In the letter that he wrote to Twitter, days before his deposition, Musk offered to complete the deal “provided that the Delaware Chancery Court enter an immediate stay of the action and adjourn the trial and all other proceedings related thereto pending such closing or further order of the Court.”
Since Twitter and Musk would be seeking a stay, Twitter has the option of getting the trial back on, should Musk tries to back out of the deal, again.
“If Twitter had engaged in a gigantic fraud about mDAU or monetised Daily Active users, if they really knew there was a better way to measure fake accounts than the process they were using but they chose to use this one anyway because it produced the numbers they liked, and if Musk could prove that, he’d be home free and wouldn’t even have to pay the $1 billion merger breakup fee,” Miller said in an interview.
Another reason why Musk is seriously considering going back to the original deal is that he might not want to proceed with a deposition scheduled for later this week. “I suspect, based on the little bit we’ve seen coming out of discovery, that probably if Elon were to get deposed this week there would be some very embarrassing questions asked about text messages and so on and what he said to whom and when,” said Miller.
There is also one final reason why Musk is considering going through with the deal. The Court where the trial is listed, i.e the Delaware court, has forced reluctant acquirers to complete merger agreements four times since 2001. The two most recent of those cases were in 2021. On top of that, the judge has not given that many concessions to Elon’s team. They have filed several requests for an unreasonable amount of data, and the judge ruled that a lot of what they were asking for, was unnecessary and genuinely confidential.
In case Musk is forced to go ahead with the acquisition, he would have bought Twitter for a price that would not reflect its actual share value. Twitter’s share value has been plummeting ever since news of this trial came out. By the time the trial concluded and the verdict was read out, it would have been far less than what it was when Musk initially made the offer.