Well, that escalated quickly. Let’s review, shall we?
In January, Elon Musk started buying a bunch of Twitter stock. In February, he kept buying. In March, he owned about 5 percent of the company. In April, he offered to buy Twitter for $44 billion. In May, he tweeted a poop emoji. In June, his net worth crashed. In July, he tried to back out of the deal—and Twitter countersued. It seems very clear from the company’s lawsuit that Twitter is prepared to take this all the way, possibly to even force Musk to acquire the company against his will.
Big picture, Twitter is in an incredibly strange position. The company’s lawsuit portrays Musk as if he’s a wayward, flighty, bad-faith grown toddler. But Twitter is also is trying to force this very same wayward, flighty, bad-faith grown toddler to be the proud owner of Twitter. “You’re a jerk, and I hate you, now marry me!” is a weird message to send, even if it makes sense for the Twitter board to pursue this strategy, within the logic of shareholder capitalism.
So, who’s got the best argument? How will this thing end? Today’s guest is Boston College Law School professor Brian Quinn. We do a deep dive into the documents of interest here—what Musk is saying, what Twitter is saying, and who’s got the strongest case.
In this excerpt, Derek and Brian discuss the role reversal between Elon Musk and Twitter, and how common that is in the world of acquisitions and mergers.
Derek Thompson: I want to start with the biggest picture here. I want to take out Elon Musk, I want to take out Twitter. How uncommon is it for someone to want to buy a company, to sign a document saying “I’m buying this company,” and then a few months later get cold feet and call up a lawyer and say, “Get me the hell out of this”? Is that general kind of remorse rare or common?
Brian Quinn: So taking all of the personalities out of this picture—cause that’s actually really the most interesting thing—but take all the personalities out of this. This is a pretty common story. We’ve seen this quite a bit in the past and I suspect we’ll see this in the future again. Buyer decides to buy a company, pays a premium to get the thing that he or she wants, something happens after they sign the contract—market goes south or competitors pop in—and then all of a sudden it doesn’t look like a good idea and the buyer gets cold feet. That’s happened a lot and it’s going to happen again in the future once we’re past all of this.
Thompson: So let’s now add back in the characters, because this isn’t any old merger with buyer’s remorse. This is the richest man in the world trying to buy one of the most famous social media companies. So as a corporate law professor, in your professional opinion, how weird is this saga and what’s the weirdest part of it?
Quinn: Yeah, it’s pretty weird. It’s like he woke up on a Saturday morning and decided, “Wouldn’t it be fun to buy the largest social media company I can get my hands on?” and then went ahead and did it. That doesn’t happen very often. So this is pretty weird. Just the whole way the thing was structured, making an offer basically via Twitter or text. The party’s not really believing him initially and then the offer was just too good and they said, “OK, fine. You want to buy it? Take it.”
Thompson: I find it so interesting that all romances have a kind of inversion of power. Beauty is scared of the beast and then woos the beast, or Jane Eyre is a homely orphan but then woos Mr. Rochester. In this you have another inversion of power. Twitter is initially resistant to the idea of Elon Musk buying them. Elon Musk enforces this acquisition, this merger, on them. It seems like Twitter is reluctantly going along with the deal and then three months later, the sides are totally reversed. Elon is trying to run away from the altar and Twitter is the jilted bride grasping onto the tux saying, “No, no, no, stay. Buy me and give my shareholders maximal value.” That inversion just seems incredibly lurid to me.
Quinn: Yeah and it’s exactly accurate. It’s exactly what happened. I mean, he shows up online and says, “I want to buy your company.” I’m sure internally, they’re all saying to each other, “He’s not serious. This guy’s going to buy our company?” Someone says, “Well, I’m sure he’s got the money, but is he really going to buy our company?” So they adopt a poison pill. They take a very standoff approach. “We don’t believe he’s serious,” and on and on.
Then he shows up with financing, like “here’s the money.” At that point one of the lawyers at Twitter has to say something like you have a fiduciary obligation to consider the fact that he’s putting $54 on the table. Do we have any ideas that are worth $54.20? I mean, a ridiculous number, and it turns out we don’t. OK, well, let’s take it. And they take it and now he wants to run away. At which point it’s worse than a nightmare for Twitter.
Why? Because the whole process, I mean, they were initially reluctant to do this deal, but the process has damaged Twitter for the long term. Now, when companies announce that they’re being acquired, they’re always going to be damaged. Because let’s say you’re a company making the second-best product in the market. You say, “I’m getting purchased by X, Y, Z.” Well, then your clients are like, “Well, why do I want to buy this guy’s product anymore?” They start shifting, shifting away. All of your back office, the lawyers, the HR department, all the people who don’t generate revenue for the company but you need to make the company operate, they realize they’re the first ones who are going to get laid off. So what do they do? They hit the street looking for other jobs.
So the longer you’re talking about getting the deal done, the more it hurts you. So they’ve been through that and now they have to start all over again? It’s a nightmare for them.
Thompson: I have a lot of sympathy for people who work at Twitter and are trying to focus on their day jobs. Musk, he’s in, he’s out, he’s in, he’s out again. You don’t know if you’re going to be a company that has the same leadership or whether they’re going to be taken private in a handful of months. It’s got to be a very confusing time to try to run a company.
This excerpt was lightly edited for clarity.
Host: Derek Thompson
Guest: Brian Quinn
Producer: Devon Manze