Twitter update: Why Musk's tweets don't matter
Elon Musk has built a reputation for influencing the markets through tweeting, however, his newest string should not be taken seriously. In Elon’s latest market altering event, Musk has been talking about the company he is in the process of acquiring in a $44 billion dollar deal, Twitter (TWTR) (more on that here). Recently however, he has been talking about postponing the deal until his investigators can confirm a statics on bots in Twitters user base.
After posting this on early May 13 (Before markets opened), Twitter has fallen over 18%, as investors are panicking over the perceived aftermath if the deal goes sideways. However, that was exactly what Elon Musk hoped would happen.
One common misconception about the deal is the walkaway fee. Most see is as a straight deal, Musk wants out, pays the fee, and the deal is over. However, with the formatting of the contract, the walkout is only an option if a judge finds grounds to overturn the contract. Elon Musk has signed a contract to buy Twitter for $44 billion USD and is legally bound to buy Twitter for $44 billion dollars. While he could bring it to court, even with the best lawyers there is no way around the fact that he has no grounds to overturn it. His argument of spam bots is not a reason to overturn the contract.
What he most likely hopes to take from this is to go directly to the Twitter board of directors and try to renegotiate the price from $54.20 to say…$50 (completely hypothetical number) by showing how much stock price has fallen. Contributing to Elon’s recent actions is the state of one of his other different companies, Tesla. Since announcing the bid for Twitter (TWTR), Telsa (TSLA) stock has fallen approximately 29%.
Because of the fall in stock price, Elon Musk will need to sell more Tesla stock than he had initially anticipated to cover the acquisition of Twitter, or find different payment methods.
Most importantly about these recent actions isn’t the impact it foreshadows, it's what it doesn’t. Regardless of Elon Musk’s personal opinions, he is contractually bound to purchase Twitter for $44 billion USD. While Elon may try to leverage this stunt to lower the acquisition price, Musk currently has nothing that can interfere with the deal in court. Because of this, regardless what he says about spam bots the acquisition of Twitter cannot legally be put on hold, or canceled.
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