Elon Musk’s Twitter adventure and why the Tesla boss won’t change his ways

On the face of it, the Twitter-Elon Musk train wreck looks like a bit of light relief for us all; an entertaining big money bust-up to raise a smile in the middle of these otherwise trying times.

There will be lawsuits, and counterclaims, and tweets, and angry statements, and breathlessly reported news stories, and more tweets, and earnest columns written by people like me. And so the pot will be stirred and brought to the boil as each side’s lawyers feast on a smorgasbord of billable hours.

A quick recap: Musk did what everyone was expecting him to do over the weekend and bailed on the $44bn (£37bn) deal he signed to make the social media company his new toy.

His reason? A fierce disagreement over the number of “fake” bot-driven accounts on the site, which aren’t much use to the advertisers that Twitter relies upon.

But wait a minute, said Twitter and its board, you pushed us into this. You shouted and screamed and forced us to the table. You agreed to pay up. Our shareholders would now like their money, thanks very much. And we’re going to sue to get it. The fact that our shares have since gone down the toilet making your bid look wildly overpriced? Not our problem.

And sue they should.

Set aside the sound and fury, and you’ll realise this matters, not just to Twitter’s shareholders but from the perspective of the capital markets more generally. You can’t just have people waltzing in, putting the heat on companies, and then agreeing to deals, only to walk away when it doesn’t suit them.

It isn’t hard to find lawyers who think Twitter has a good case. All the same, it will likely settle in the end.

The company has some deep-seated problems. It is faced with aggressive and innovative competitors it has failed to keep pace with. Financial results have disappointed. The board has been taking heat. These failures are what encouraged Musk to chance his arm in the first place. We wouldn’t be here if Twitter were addressing its challenges and fulfilling its potential.

These issues are what will probably ultimately force the company’s hand as Musk creates yet another circus, and his legion of acolytes steam in.

Watch the shares. The markets never thought the deal would complete, which is why they traded at a deep discount to the $54.20 offer price while the bid was live. The markets don’t now see much chance of this ending with a court forcing Musk to pay up (although it has happened in the past) which is why the shares were languishing at around $34 on Wall Street at the time of writing.

Musk will probably have to make a payment of some kind. There’s a $1bn break fee as your starter for 10. Twitter will, however, demand compensation beyond that, which is what will keep this going for a while.

Twitter’s board has to try and make Musk pay something substantial because if it doesn’t, it will end up getting sued by its own investors. So this won’t end either quickly, or easily. But when it does, the mostly likely way is through a settlement at such time as the two sides get fed up with throwing bricks and paying lawyers.

This brings us to America’s regulators.

The supposedly feared Securities & Exchange Commission has crossed swords with Musk before. You may remember he mooted taking Tesla, his electric car maker, private in a tweet only to back away from the proposed transaction after the shares went kaboom.

The result was an investigation and a legal settlement which included a $20m fine on for Musk – small change for the richest man in the world – and a $20m fine on Tesla plus the largely pointless appointment of some new non-executive directors to the car maker’s board and the similarly pointless establishment of a committee of independent directors to put in place “additional controls and procedures to oversee Musk’s communications”.

That has to be worth an LOL, no? “The resolution is intended to prevent further market disruption and harm to Tesla’s shareholders,” trumpeted the watchdog.

Musk’s wrist must have been hurting for what, five minutes, after that slap? OK, maybe it was a bit longer than five minutes. Rich guys don’t get rich without getting upset about losing money. But the pain won’t have lasted for long.

There is a simple reason why Musk carries on like he does: it is because he can. It is because America’s allegedly “powerful” securities watchdogs let him. The markets mostly let him. There are enablers wherever you care to look.

The Twitter deal that wasn’t could get quite costly for Musk, but he will likely continue shooting from the hip, thumbing his nose at Wall Street, investors and regulators, when this is done unless and until someone at the SEC says, you know what? Enough already.

But they won’t do that. If the SEC sticks its nose into this, Musk’s wrists may end up stinging from another slap at some point in the future. But I don’t imagine the pain will be much more intense than last time.