Twitter – The price of free speech pt. VIII.

Musk caves.

• Elon Musk has realised that he is very likely to lose his court case against Twitter meaning that he has again offered to buy the company for $44bn ($54.20 per share) but the transaction is going to be even more expensive now than when he originally made the offer.
• There are two big winners from this event:
  • First, fair play and the notion that when one makes a deal one should stick to it and not be able to back out on a whim which has now been given a substantial boost.
  • Second, Twitter shareholders who are now likely to receive a ludicrous price for the shares that they hold as I have estimated that without this deal the price would probably be something more like $17.
• It now looks very likely that the deal will go ahead as planned and that the court case that was scheduled to begin on October 17^th to force Mr Musk to stick to the deal he signed will now not go ahead.
• I think it is pretty clear what has happened, and it is an event that is fairly common to legal proceedings in general.
• This is when two parties appear to be at loggerheads and then an event occurs that causes one party suddenly to be more willing to negotiate and then the case quickly resolves.
• Going into this Mr Musk was of the opinion that he could win the case despite the fact that most observers (including me) thought that the reasons he gave for terminating the deal had very little merit.
• This is why I suspected that he would lose the court case but at the same time, I thought that the verdict would be difficult to enforce.
• However, it appears that Mr Musk has decided or been advised that the legal pain is not worth it and that buying the company at the obviously inflated price is the best option.
• The pre-trial procedures have not gone well for Musk and I suspect that this is what led to Musk realising that he was holding a losing hand and to throw in the towel.
• The problem now is that financing the deal is going to be much more difficult and more expensive than it would have been had he put it together in April
• This is because interest rates are materially higher now than they were in April and shares which could be used as collateral or as a source of capital have lost 20% or more of their value.
• Furthermore, all of those contributing financing will be aware that the shares are ludicrously overvalued which combined with the shortage of liquidity means that they will be demanding a high price for their dollars.
• Mr Musk is going to be stuck with Twitter for the long-term which based on what he was saying 6 months ago is exactly what he wants.
• This is a textbook lesson in caveat emptor.