Musk caused a fire that Twitter didn’t know it needed
By offering to buy the company and then walking away, he at least signaled how badly Twitter needed an overhaul.
Elon Musk set Twitter on fire when he offered to buy the social network for $44 billion in April. Even if he now walks out of the deal, Twitter boss Parag Agrawal may manage to keep the fire from going out entirely.
Musk’s lawyer testified Friday that Twitter had breached the terms of their agreement by failing to provide the Tesla boss with data he said he needed to gauge the social media company’s fake user problem. Unsurprisingly, Twitter’s board of directors is threatening to require him to honor his promises in court. Although he can theoretically try to force Musk to consummate the deal, he may settle for a few billion dollars.
If anything, the deal was riddled with problems from the moment Musk revealed he had a 9% stake in Twitter in April. He wanted to be on the company’s board of directors, and then said that he no longer wanted to. He then made an offer to buy the company, but backed out, and that started to affect Twitter’s stock. In after-market trading on Friday, shares of the company were 11% below their level before Musk disclosed his investment. They are likely to fall further as the Nasdaq 100 Index is down around 20% in this time.
Twitter also mishandled the situation. The board of directors, led by independent chairman Bret Taylor and including co-founder Jack Dorsey, did not take the time to seek bids for the company, nor did it discuss separating some potentially contentious partners from discussions. The deal he agreed to allowed Musk to walk away with a relatively low break fee of $1 billion, albeit with other clauses that could restrict him.
Whatever happens, Twitter can thank Musk for pointing out some flaws in its business. In effect, it has fake users and low operating margins compared to companies like Meta Platforms, which owns Facebook. Agrawal could cut back on research and development, which takes more than half of the company’s gross revenue, according to Refinitiv, yet has not delivered any major product innovations. You might consider trying more subscription services, something Musk proposed.
If another bidder came along, Twitter could be more efficient, more valued, and better prepared to carry out the proper paperwork. And any other company that gets a hasty takeover pitch from Elon Musk will be on notice to brush him off.
