The Business Magnate and investor Behind Twitters Decline
In a May presentation to investors, Elon Musk stated that he intended to increase the company's revenue to $26.4 billion by 2028 and the number of users to 931 million, up from 217 million at the end of 2017. Now he wants to back out of the agreement.
On Monday, it became apparent how much significant harm Mr. Musk had caused to Twitter. As investors prepared for the impending legal conflict, Twitter's share price dropped more than 11 percent, reaching one of its lowest marks since the year 2020.
Since Twitter announced on April 25 that it would accept Mr. Musk's offer to acquire the company, the stock price of Twitter has dropped by more than a third of its value. Investors have become increasingly skeptical that the acquisition will be completed according to the originally agreed-upon terms.
In a letter sent to Mr. Musk's attorneys on Sunday, the company's attorneys stated that his move to terminate the deal was "invalid and wrongful" and that Mr. Musk "knowingly, intentionally, willfully and materially breached" his agreement to buy the company. The company's lawyers also stated that Mr. Musk "knowingly, intentionally, and materially breached" his agreement to sell Tesla.
The letter said that Twitter would keep working on completing the transaction and would continue to supply Mr. Musk with updates.
The most notable aspect of the devastation Mr. Musk is leaving behind on Twitter may be the harsh manner in which he exposed the firm's deteriorating financial and business prospects.
Seven out of the nine years that Twitter has been a publicly traded corporation, it has posted an annual operating loss.
According to sources who are familiar with the issue and have knowledge of the facts, the company did not get any substantial interest from other potential buyers while considering Mr. Musk's offer.
The board of directors of Twitter concluded that Mr. Musk's offer of $54.20 per share was the best it could get, which suggests that they did not see any way for Twitter to reach that price on its own.
Twitter's finances have been increasingly precarious over the past few months. In a May memo to Twitter staff, Twitter's chief executive, Parag Agrawal, expressed his disappointment that the firm had not met its business and financial goals.
To solve the problems, he fired the directors of product and revenue, slowed down the hiring process, and started a campaign to attract new customers and diversify into e-commerce.
Due to the impending purchase, the firm decided to discontinue providing investors with a forward-looking financial outlook in the month of April. It is quite unlikely that this trajectory will change because advertisers, Twitter's primary source of revenue, are unnerved by the uncertainty surrounding the purchase.
In a letter sent to the Securities and Exchange Commission on Friday, Mr. Musk highlighted that Twitter does not have a clear plan for its financial future.
According to what his attorneys stated, he was concerned about the "declining business prospects and financial prognosis" of the company, which was especially relevant when considering Twitter's recent "financial performance and revised outlook" on the fiscal year ahead.
Mr. Musk, who has more than 100 million followers on Twitter, has also been very critical of the product, arguing that it does not have the same appeal as other mobile applications.
He has asserted on multiple occasions, without providing any proof to support his claims, that Twitter is infested with a greater number of fake accounts than the platform has made public. According to the firm, less than 5 percent of the accounts that may be found on its site are false. These accounts can be programmed to post harmful or inaccurate content automatically.
Misinformation specialists say that his jabs about bogus accounts have undermined faith in Twitter just as the business is preparing to moderate hot political talks about impending elections in Brazil and the midterm elections in the United States this fall.
In yet another critique of Twitter and how it monitors content, Mr. Musk threatened to dismantle the moderation standards of the firm to protect the right to free speech.
In May, he announced that he intended to "lift the permanent ban" that had been placed on former President Donald J. Trump's account on Twitter. This would allow Mr. Trump to rejoin the social network.
This reignited debates about how Twitter should manage debates about the boundaries of free speech, which infuriated those on the right who have long accused the platform of stifling them.
According to six current and former workers, the morale of the company's employees has been severely damaged, which has led to infighting and attrition within the organization.
Some of them have expressed their relief at the news that Mr. Musk appears to have opted against purchasing the business.
According to internal communications The New York Times accessed, some users posted nihilistic memes on the company's Slack channel. In contrast, others publicly lambasted Twitter's board of directors and executives for even considering Mr. Musk's offer in the first place.
According to two persons who are familiar with the executives' thought process, the executives' demeanor could be described as one of grim resolve.
On Friday, Mr. Musk announced that he intended to back out of a $44 billion deal that was reached in April for Twitter because the firm hadn't delivered the information required to analyze the volume of bogus accounts that are present on its network.
Bret Taylor, the chair of Twitter's board of directors, stated that the firm is "committed to finalizing the transaction" and added that Twitter would seek legal action to enforce the arrangement.
Twitter made public on Monday a letter that had been sent on July 10 and stated that Mr. Musk's attempt to back out of the acquisition constitutes a breach of his commitments outlined in the merger agreement.
Due to the precarious nature of the situation, Twitter is planning to file a lawsuit against Mr. Musk as soon as this week to compel the conclusion of the purchase.
The legal conflict will undoubtedly drag on for a very long time and be enormous; it will likely involve months of time-consuming and financially draining litigation and high-stakes talks by accomplished attorneys.
A resolution is by no means assured; Twitter has a chance of winning, but if it does not, Mr. Musk has the option of walking away by paying a breakup fee.
Or, the parties could try to rework their agreement or reach a settlement.
Twitter's response indicated that the company will "pursue legal action to enforce the merger agreement." Those who have put their money into Twitter (TWTR) aren't laughing. In the early pre-market trading on Monday, the shares of the social networking platform experienced a decline of 5 percent.
On Monday, the company's shares reached a closing price of $32.65, which is roughly 40 percent lower than the price of $54.20 per share that Mr. Musk agreed to pay.
The transaction was anticipated to increase Twitter's leverage by a factor of three and add hundreds of millions of dollars in interest.
Mr. Begley stated that if the deal were to be canceled, the company's future prospects would be "improved."
The amount of cash and cash equivalents held by Twitter during the first quarter of this year decreased to $2.30 billion from $4.25 billion during the same time period in the previous year.
During the course of the quarter, the company's short-term investments saw a fall of 12.7 percent, bringing the total to approximately $4 billion. This compares to $4.55 billion during the same period last year.
According to S&P Global Market Intelligence statistics, Twitter had approximately $6.62 billion in total debt at the end of the first quarter. This figure represents an increase from the company's previous debt level of $5.54 billion at the end of 2021.
According to S&P, Twitter has no maturities approaching this year or the following year. A significant portion of the debt is converted into convertible bonds and senior notes.
According to statistics provided by S&P, Twitter added approximately $2.43 billion in new debt earlier this year, all of which was issued in the form of convertible bonds.
S&P Global Ratings stated on Thursday that Twitter's BB+ rating, which is below investment grade and continues to be on credit watch negative, and that the possibility of litigation between the firm and Mr. Musk adds to the uncertainty surrounding the transaction.
Tesla is the driving force behind Musk's herculean influence, resulting in the enormous wealth he now possesses by mere mortal standards. In the past 52 weeks, Tesla has seen a decline of 44 percent from its high of $1,243.49. However, since Elon Musk's initial stakes in Twitter were made public in April, the share price of Tesla has decreased by 31 percent. On the other hand, a number of other technology equities have seen significant drops in price since April as well.