Twitter and Elon Musk

ByUmair Ali

Trainee lawyer


July 28, 2022

Umair Jalali looks at an intriguing offer

There is a general consensus that Elon Musk is a maverick figure but Twitter is not though there are emerging doubts about its essential attributes. However, the fact remains that Twitter is unprecedented portal that has caught the fancy of countless millions. Twitter has tremendously added to the reach of social media and it has gained unusual credibility as a veritable tool of disseminating views of people from all walks of life particularly those wielding social, economic and political power. This remarkable access was unheard of just a few years before and Twitter has indeed proved to be a game changer. It was precisely the huge utility factor associated with Twitter that prompted Elon Musk to go for buying it. Midway through the deal a friction emerged compelling Musk to go back on his offer. Twitter has officially sued Elon Musk for not fulfilling his $44 billion acquisition offer. The lawsuit accuses the South African billionaire of bad faith and hypocrisy. Musk refused to go on with the buyout, claiming that the social media platform refused to share important data, such as the number of fake accounts on Twitter. However, Musk signed a legally binding agreement with Twitter with a performance clause, where the company could sue the founder of Tesla to force the deal.

On the contrary, Twitter lawyers alleged that Elon Musk refuses to honour his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests. Everything seems to be set for a lengthy legal battle between the founder of Tesla and the social media platform. However, that is not the last of Musk’s troubles. The United States Securities and Exchange Commission made public on 27 May that it was investigating Elon Musk’s purchase of Twitter stock last April. It was also reported that the SEC declared that Musk filed a document declaring that his Twitter stock investment would be passive and that he would not pursue control of the whole social media company. Ten days after filing the document, Musk tried to purchase the entirety of Twitter for 44 billion US dollars.

The SEC is also questioning if Musk properly revealed his stake in Twitter. Federal law requires that individuals who own more than 5% of a company’s shares disclose their ownership 10 days after crossing the threshold. Musk, according to SEC regulatory filing, crossed the threshold on 14 March but neglected to make it public until 4 April. This generated the ire of Twitter investors, who are now suing the Tesla founder. It was pointed out in this respect that by delaying his disclosure of his stake in Twitter, Musk engaged in market manipulation and bought Twitter stock at an artificially low price. It was added that Musk saved himself over $150 million by not properly documenting how many stocks of Twitter he owned.

Everything seemed to be set for Musk’s social media buyout. Twitter’s 11-member board met with the South African-born billionaire and approved on 25 April the Tesla founder’s acquisition of the social media platform. Twitter agreed to sell itself to Elon Musk for a value that, according to an official statement, was 38% above the company share prices at the start of April. Musk became the company’s largest stockholder by acquiring 9.8% of Twitter’s stock around that time. The company threatened to flood the stock market with new shares if Musk attempted to acquire 15% or more of Twitter. The strategy, known as a ‘poison pill’, had been used in the past as a negotiation ploy and this time does not seem to have been any different. The company saw increased pressure from its largest shareholders to support Musk’s bid particularly since Twitter’s share had lost over 60% of its value in the past months.

It was reported that to cover the $44 billion, the founder of Tesla has taken loans from at least twelve different banks, among other things, to secure funding. Musk campaign highlighted that free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated. At the time of bidding for Twitter Tesla had declared that Twitter has tremendous potential and that he looked forward to working with the company and the community of users to unlock it. Musk stated his desire to make Twitter go private, meaning that the company would no longer take part in the stock market. The billionaire believes this would prevent the social media platform from being at the mercy of its market value.

To put things in perspective, it was reported that Twitter co-founder and former CEO Jack Dorsey only had 2% and still had to answer to the board and to the shareholders. Interestingly, Musk has in the past denounced that the company failed to adhere to free speech and that Twitter’s practices were fundamentally undermining democracy. Musk, who describes himself as a ‘free speech absolutist’, has complained about Twitter’s moderation in the past. However, this also brings up the debate about the limits of free speech and the fear of inciting hate. In this context it is pointed out that Musk had claimed to be against free speech that goes far beyond the law and that he hoped that even his worst critics remain on Twitter because that is what free speech means.

In this connection it was reported that there are many things that are still unclear about the acquisition, from Musk’s specific details of how he will run the company to who will be on the board. The South African-born billionaire already runs Tesla and SpaceX, so heading a third corporation seemed unlikely. What is known is this: If Musk managed to complete the deal somehow, the future of Twitter (and social media in general) could have changed forever. It is still not sure what is next in store for the social media network. There surely are hitches as is borne out by the fact that Amazon’s Jeff Bezos’ acquisition of The Washington Post drew similar criticism as Musk’s buyout that point out Tesla’s business connections to China and many wondered exactly if the Chinese government had gained leverage on Twitter.

Interestingly, the official Republican Party Twitter account requested Musk to lift the ban on former US President Donald Trump from the platform. However, Trump himself has been quoted saying he will not return. In this context Trump stated that he likes Musk a lot and that he is an excellent individual. He added that he did a lot for Twitter when he was in the White House and that he was disappointed by the way I was treated on Twitter. Trump himself has been trying to launch his own social network: Truth Social. Musk’s promise of an unregulated Twitter may undermine the former president’s business plans. Elon Musk maintains a high public profile and many of his actions are criticised and Twitter deal has been further complicated as the South African billionaire is facing accusations of misconduct with a former female SpaceX employee. Musk has dismissed the claims, arguing that it is all part of a plan to sabotage his Twitter acquisition. TW


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