Elon Musk’s attempts to lower the price could backfire

Le 4 avril, Elon Musk est devenu le premier actionnaire de Twitter.

The case of the takeover of Twitter by Elon Musk could take a new legal turn. On April 4, the boss of Tesla became the first shareholder of the social network. Less than two weeks later, he reached an agreement with the company’s board of directors for a buyout at a price of $54.20 a share, or about $44 billion.

But since then, accusations have been coming from all sides, both from the billionaire and from Twitter, compromising the outcome of the operation. It could thus end either in a renegotiation if the network bends under the demands of its buyer, or in a capitulation of Musk who would thus cease his offensive, or in a legal confrontation between the two parties, long and expensive.

Lower the purchase price

It is also on the legal front that the case seemed to be moving on Thursday after Twitter shareholders filed a complaint against Elon Musk. According to documents submitted to a California court on Wednesday, the plaintiffs accuse him of having delayed the moment when he revealed that he had taken a stake in Twitter, which is nevertheless a legal obligation beyond certain thresholds. This delay thus allowed the businessman to save some 156 million dollars, they estimate, because if he had informed the market in time, he would have paid more for part of the shares. “By delaying the release of his Twitter stake, Musk manipulated the market and bought shares at an artificially low price”, assure the lawyers of the investors, led by William Heresniak. And for good reason, when Musk announced that he had reached more than 9% of the capital of Twitter on April 4, the action took off by 25%.

“Musk made statements, sent tweets, and took other actions designed to sow doubt and substantially lower Twitter’s stock to create some breathing room he hoped to use to back out of the deal or renegotiate. the price”, the complaint alleges. Since the beginning, Elon Musk has indeed fluctuated the value of the platform on the Stock Exchange with his tweets and statements. For example, on May 14, he announced to everyone’s surprise that his $44 billion deal to buy Twitter was “suspended”. In the aftermath, the share price fell more than 9%, although the billionaire added two hours later that he was still engaged in the buyout, the “suspension” announced having, legally, no value. This strategy is part of a desire to renegotiate the acquisition price. Because the lower the share price, the higher the premium [la différence entre le cours de l’action et le prix de rachat, ndlr] offered by Musk to Twitter shareholders in its initial offer, becomes more important. Gold, “If the renegotiated downward price still offers an attractive premium, it will be accepted by shareholders. With the share price falling, Elon Musk has significant room for manoeuvre”explained Pierre-Emmanuel Perais, lawyer at Linklaters to the gallery.

Debate over the number of fake accounts

Musk’s repeated accusations relate to the number of fake accounts among Twitter users that the businessman believes are undervalued. According to Twitter, this figure is only 5%. Elon Musk is based on a very questionable evaluation method – a survey of a sample of 100 @twitter account subscribers, chosen at random – and claims that the platform has more than 20% fake accounts. In a tweet posted this May 17, he outbids, saying that this figure could even be “far superior” : “My offer was based on the fact that Twitter’s statements to the SEC [le gendarme des marchés américains, ndlr] were correct. Yesterday, Twitter’s chief executive publicly refused to show evidence that the figure is below 5%. The operation cannot move forward until he does.”, did he declare. He also confirmed that he was considering a downside negotiation of the buyout deal.

Especially since it takes advantage of the fact that Twitter is in a relatively weak position. Evidenced by the recent announcement of the freezing of its recruitments and the dismissal of two managers appointed barely 6 months ago. CEO Parag Agrawal justified these measures by the failure of his teams to achieve the intermediate growth objectives they had set. Beyond Twitter, the entire US tech industry is going through tough times. All technology stocks are collapsing, a consequence of the upcoming tightening of interest rates in a very tense geopolitical context.

Negotiations or confrontation

In difficulty, the board of directors of Twitter can therefore either agree to sit down at the negotiating table to revise the price downwards before Elon Musk sabotages his reputation even more. But he can also decide to go to the confrontation: the billionaire is bound by the contract. Only a verified fraud on the part of Twitter would allow him to get out of it. If he fails to demonstrate it, he could still be forced to go through with the operation. And in this case, his maneuver to depreciate the value of the company could backfire. The large American companies do not hesitate to embark on major legal proceedings and to play the confrontation. The investor complaint filed against it seems to attest that the fight is not won in advance…on one side or the other.