Uncommon dollars can't buy common sense

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by Glenn Dyer

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It was Friday the 13th after all.

Many other investors took a while to notice the conjunction of the date and the start of Musk’s tap dance away from his now highly expensive $US54.20 per share, $US44 billion takeover offer for Twitter.

A flock of legal beagles sniffed the air and smelt legal fees aplenty as Musk set in train an attempt to drop the bid by placing a temporary hold on the $US44 billion offer without paying the $US1 billion break fee.

He is suggesting that the number of spam and bot accounts on Twitter was higher than disclosed – 5% is the share according to repeated filings with US regulators. Musk in fact linked his ‘hold’ announcement to a recent Reuters story quoting that figure.

He said “his team” will check 100 random Twitter accounts to see how many are bots or spam – a farcical survey and indicates his desperation to quit the high (now) price.

Musk in fact has already waived the right to do due diligence on Twitter’s accounts, which would have picked up and identified the dodgy accounts, if they exist. So he is attempting to avoid paying a price for his own stupidity.

Musk looks like he is trying to avoid the break fee by claiming there are more dodgy Twitter accounts which he will use to claim what’s called a ‘material adverse event’ in US stockmarket legalese. Such an event can be used to void a previous decision such as a ‘final’ takeover price and allow the bidder to come back again with a lower offer price.

That would see him drop the offer and the high price and come back – even if he described the $US54.20 as a final price.

That’s why the legal beagles are gathering – shareholders in Twitter will sue if he tries to walk or come back with a lower offer price.

Shareholders in Tesla will sue because they worry that Musk is not paying attention to its business as production and sales in China stutter in the downturn caused by Covid lockdowns.

But the Securities and Exchange Commission may get in first – it is already investigating the lack of proper disclosure as to when Musk initially revealed his Twitter stake.

By some estimates he revealed the stake after he was required to do so by US corporate laws, especially when it became known he started buying Twitter shares much earlier than he had previously disclosed.

In late April a US federal court quashed an attempt by Musk to wriggle free of a SEC order he agreed to in late 2018 over Tweets Musk had issued claiming he could take the car company private at $US420 a share.

As part of the settlement agreement, Tesla and Musk each agreed to pay a $20 million fine to the SEC. Musk also had to relinquish his role as chairman at Tesla for three years and agreed not to claim innocence or deny the allegations of the SEC’s complaint.

Finally, Tesla and Musk agreed to have the CEO’s tweets vetted by an experienced securities lawyer before posting them if they contained material business information likely to impact Tesla’s share price.

Tesla shares have sunk by more than 25% (Nasdaq is down 14% as well). Some of his shares are being used to finance other businesses such and Tesla with exotic deals with investment banks involving caps and collars with the Tesla shares used as collateral.

The slump in the EV maker’s share price would have worried his bankers, before they looked at funding the Twitter offer, even though several leading banks have put their names to a funding document.

Twitter shares gave an idea of what might happen if Musk walks (he did issue a second statement on Friday morning saying he was “still committed to the acquisition”

But first he has to run the gauntlet of the SEC and shareholders in both Twitter and Tesla and an avalanche of legal actions.


Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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