Elon Musk sells Tesla shares worth $6.9 billion to help fund potential forced Twitter deal

[midian182]

What just happened? Just how sure is Elon Musk that he'll win the legal battle against Twitter? Given that he sold 7.92 million Tesla shares worth $6.9 billion to help fund any forced deal, the world's richest man might not feel as confident as he lets on.

Although Musk sits on top of the list of the world's richest people with a personal fortune of around $250 billion, much of his wealth is in the form of Tesla shares. Multiple SEC filings show he sold about 7.92 million of these shares between August 5 and August 9, worth around $6.9 billion.

Musk said at the end of April that he didn't plan to sell any more of his Tesla shares after he unloaded $8.4 billion worth that same month, money that was supposed to be used to help finance the Twitter acquisition.

Earlier today, Tesla investor Sawyer Merritt tweeted the SEC forms showing Musk had sold millions more shares and asked the CEO if he was done selling.

"Yes," replied Musk. "In the (hopefully unlikely) event that Twitter forces this deal to close *and* some equity partners don't come through, it is important to avoid an emergency sale of Tesla stock." He said in another tweet that he would buy Tesla stock again if the Twitter deal does not complete.

Yes.

In the (hopefully unlikely) event that Twitter forces this deal to close *and* some equity partners don't come through, it is important to avoid an emergency sale of Tesla stock.

— Elon Musk (@elonmusk) August 10, 2022

Musk previously secured $7 billion from Larry Ellison, Binance, the Qatar state investment fund, Morgan Stanley, and several others to help fund the $44 billion Twitter takeover. He walked away from the deal in early July over his long-running claim that the company lies about the number of fake accounts on the platform. It says there are less than 5%; Musk claims it's more like 20%.

Twitter and Musk will be heading for a five-day trial on October 17 after the judge granted Twitter's request to expedite proceedings. It wants to force Musk to complete the deal at the original $54.20 per share price—it's currently $42.83—or pay a hefty breakup fee. Musk recently said he would be willing to buy Twitter at that price if it showed precisely how it counts the number of fake accounts on the platform. He also challenged CEO Parag Agrawal to "a public debate" on the issue, which the Twitter boss appears to have ignored.

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https://www.techspot.com/news/95581-elon-musk-sells-tesla-shares-worth-69-billion.html

 

[mctommy]

Twitter likely provided him how they come up with the count but it wasn't to man child's satisfaction and threw a fit via twitter... now man child wants public debate?

"Musk recently said he would be willing to buy Twitter at that price if it showed precisely how it counts the number of fake accounts on the platform. He also challenged CEO Parag Agrawal to "a public debate" on the issue, which the Twitter boss appears to have ignored."

 

[nnguy2]

Buy now for easy 20% profit when musk is forced to buy at $54/share.

 

[NintPlayBox]

In Summary Elon Musk is preparing to be forced to buy Twitter by selling his own Tesla stocks.

That's what he gets for opening his mouth without thinking things through first....

 

[Endymio]

Twitter likely provided him how they come up with the count

From SEC's EDGAR filings:

July 7, 2022: "(...Information related to Twitter’s process for auditing the inclusion of spam and fake accounts in mDAU.) Twitter has still not provided much of the information specifically requested by Mr. Musk in Sections 1.01-1.03 of the May 19 diligence request list that is necessary for him to make an assessment of the prevalence of false or spam accounts on its website..."

June 6, 2022: "...As noted, under various terms of the merger agreement, Twitter is required to provide data and information that Mr. Musk requests in connection with the consummation of the transaction. Mr. Musk is entitled to seek, and Twitter is obligated to provide, information and data for, inter alia, “any reasonable business purpose related to the consummation of the transaction” (Section 6.4).

As Twitter’s prospective owner, Mr. Musk is clearly entitled to the requested data to enable him to prepare for transitioning Twitter’s business to his ownership and to facilitate his transaction financing. To do both, he must have a complete and accurate understanding of the very core of Twitter’s business model—its active user base. In any event, Mr. Musk is not required to explain his rationale for requesting the data, nor submit to the new conditions the company has attempted to impose on his contractual right to the requested data. At this point, Mr. Musk believes Twitter is transparently refusing to comply with its obligations under the merger agreement, which is causing further suspicion that the company is withholding the requested data due to concern for what Mr. Musk’s own analysis of that data will uncover.

If Twitter is confident in its publicized spam estimates, Mr. Musk does not understand the company’s reluctance to allow Mr. Musk to independently evaluate those estimates. ...

 

[psycros]

If a complete miscarriage of justice does force the deal to go through, I hope Twitter's execs have their resumes updated. Elon's payback isn't going to be pretty. He'd be smart to require identify verification of account owners with strict limits on how many accounts a single person or entity can have. Adding an ad-free paid tier would also be wise.

 

[waclark]

Twitter likely provided him how they come up with the count but it wasn't to man child's satisfaction and threw a fit via twitter... now man child wants public debate?

"Musk recently said he would be willing to buy Twitter at that price if it showed precisely how it counts the number of fake accounts on the platform. He also challenged CEO Parag Agrawal to "a public debate" on the issue, which the Twitter boss appears to have ignored."

Sorry but no, Twitter did not share that info. See this article, https://www.wired.com/story/twitter-musk-bots/

From that article (note the last sentence)

On Monday, Agrawal posted a thread explaining how complex the challenge still is. He noted that the private data Twitter holds may change calculations around the number of bots on the service. “FirstnameBunchOfNumbers with no profile pic and odd tweets might seem like a bot or spam to you, but behind the scenes we often see multiple indicators that it’s a real person,” he wrote in the thread. Agrawal also said that Twitter could not disclose details of these assessments.

 

[waclark]

In Summary Elon Musk is preparing to be forced to buy Twitter by selling his own Tesla stocks.

That's what he gets for opening his mouth without thinking things through first....

I'm pretty sure he thought things through. Getting the proper valuation is critical to a deal of this size. Twitter won't reveal the info to the buyer so what makes you think they would have revealed that info to a prospective buyer? It's like buying a house but the owner won't let you inside to take a look until you've bought the house. Doesn't work that way and Agrawal knows it. He's just trying to get a better payday out of Musk.

 

[Tom Yum]

I'm pretty sure he thought things through. Getting the proper valuation is critical to a deal of this size. Twitter won't reveal the info to the buyer so what makes you think they would have revealed that info to a prospective buyer? It's like buying a house but the owner won't let you inside to take a look until you've bought the house. Doesn't work that way and Agrawal knows it. He's just trying to get a better payday out of Musk.

Musk made a unsolicited offer of $54.20 and waived due diligence. The time to do the proper valuation was before he made an offer that wasn't contingent on business due diligence, not after. If Musk was worried about spam percentages, he should have made that a condition of the offer, and not waived due diligence, and not posted about wanting to buy Twitter to 'smash the bots' before he made his offer.

 

[Uncle Al]

I don't like either one of them but Musk knew what he was getting into and deserves to take the hit. Heck, he'll just raise the cars price and overcharge the govt. for space-X then write it all off on his taxes .... no sympathy ....

 

[Endymio]

[Musk] waived due diligence.

How many times are people going to repeat this falsehood? From the actual SEC filing:

"In April 13, 2022, the Reporting Person [Musk] delivered a letter to the Issuer (the “Letter”) which contained a non-binding proposal (the “Proposal”) to acquire all of the outstanding Common Stock of Twitter not owned by the Reporting Person for all cash consideration valuing the Common Stock at $54.20 per share....The Proposal was (and remains) non-binding and, once negotiated and agreed upon, would be conditioned upon, among other things, the: (I) receipt of any required governmental approvals; (ii) confirmatory legal, regulatory, accounting and tax due diligence..."

"...Information related to Twitter’s process for auditing the inclusion of spam and fake accounts in mDAU. Twitter has still not provided much of the information specifically requested by Mr. Musk in Sections 1.01-1.03 of the diligence request list that is necessary for him to make an assessment of the prevalence of false or spam accounts on its website..."

 

[Bobbydpue]

How many times are people going to repeat this falsehood? From the actual SEC filing:

"In April 13, 2022, the Reporting Person [Musk] delivered a letter to the Issuer (the “Letter”) which contained a non-binding proposal (the “Proposal”) to acquire all of the outstanding Common Stock of Twitter not owned by the Reporting Person for all cash consideration valuing the Common Stock at $54.20 per share....The Proposal was (and remains) non-binding and, once negotiated and agreed upon, would be conditioned upon, among other things, the: (I) receipt of any required governmental approvals; (ii) confirmatory legal, regulatory, accounting and tax due diligence..."

"...Information related to Twitter’s process for auditing the inclusion of spam and fake accounts in mDAU. Twitter has still not provided much of the information specifically requested by Mr. Musk in Sections 1.01-1.03 of the diligence request list that is necessary for him to make an assessment of the prevalence of false or spam accounts on its website..."

Whatever you are posting was superseded by what came after. The purchase agreement was created and signed on or after the 22th of April which was binding.

On 13 July Twitter filed a complaint with the SEC which contained the following:

"1. In April 2022, Elon Musk entered into a binding merger agreement with Twitter, promising to use his best efforts to get the deal done. Now, less than three months later, Musk refuses to honor his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests. Having mounted a public spectacle to put Twitter in play, and having proposed and then signed a seller-friendly merger agreement, Musk apparently believes that he — unlike every other party subject to Delaware contract law — is free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away. This

repudiation follows a long list of material contractual breaches by Musk that have cast a pall over Twitter and its business. Twitter brings this action to enjoin Musk from further breaches, to compel Musk to fulfill his legal obligations, and to compel consummation of the merger upon satisfaction of the few outstanding conditions.

2. Musk, the Chief Executive Officer of Tesla, Inc. and leader of SpaceX and other entities, opened a Twitter account in 2009. His presence on the Twitter platform is ubiquitous. With over 100 million followers, Musk’s account is one of the most followed on Twitter, and he has Tweeted more than 18,000 times. He has also suggested he would consider starting his own company to compete with Twitter.

3. On April 25, 2022, Musk, acting through and with his solely-owned entities, Parent and Acquisition Sub, agreed to buy Twitter for $54.20 per share in cash, for a total of about $44 billion.

4. That price, presented by Musk on a take-it-or-leave-it basis in an unsolicited public offer, represented a 38% premium over Twitter’s unaffected share price. The other terms Musk offered and agreed to were, as he touted, “seller friendly.” There is no financing contingency and no diligence condition. The deal is backed by airtight debt and equity commitments. Musk has personally committed $33.5 billion."

"Having mounted a public spectacle to put Twitter in play, and having proposed and then signed a seller-friendly merger agreement," The reason people keep saying he waved due diligence is because it was written in the agreement Elon proposed to Twitter.

Also in the complaint is the following:

"7. Musk’s exit strategy is a model of hypocrisy. One of the chief reasons Musk cited on March 31, 2022 for wanting to buy Twitter was to rid it of the “[c]rypto spam” he viewed as a “major blight on the user experience.” Musk said he needed to take the company private because, according to him, purging spam would otherwise be commercially impractical. In his press release announcing the deal on April 25, 2022, Musk raised a clarion call to “defeat[] the spam bots.” But when the market declined and the fixed-price deal became less attractive, Musk shifted his narrative, suddenly demanding “verification” that spam was not a serious problem on Twitter’s platform, and claiming a burning need to conduct “diligence”"

 

[Endymio]

all those requests for information should have been done before signing the purchase agreement. That's the due diligence part of any deal and that due diligence is done before the purchase agreement is signed.

Have you ever bought anything that cost more than the price of a used car? Even a basic starter-home purchase contract typically includes a due diligence period. In merger-and-acquisition terms, it always does:

"Due diligence is the time a buyer has after signing a contract to assure themselves they are getting the asset they are paying for..."

And:

Due diligence is simply the investigation of a potential investment. Typically, it starts after an offer is agreed upon by both buyer and seller...Typically, the due diligence period will last for 45-180 days, depending on the sophistication of the buyer and complexity of the deal...

And:

The due diligence starts from the moment the contracting parties reach a contractual agreement and ends when the mutually agreed period expires...

Due Diligence Period (Explained: All You Need To Know)

Looking for Due Diligence Period? What is a due diligence period in simple terms? How does it work? This is a must read blog post!

incorporated.zone

And:

Due diligence is the extensive review of an asset or business after a buyer and seller have already come to a purchase agreement....

Due Diligence - Definition, Process and Quiz | Business Terms

Due diligence is the extensive review of an asset or business after a buyer and seller have already come to a purchase agreement.

businessterms.org

 

[Bobbydpue]

Have you ever bought anything that cost more than the price of a used car? Even a basic starter-home purchase contract typically includes a due diligence period.

Due diligence isn't completed after the purchase it's before. Every thing you wrote was after an agreement was made, but before the deal was completed. Also Elon's proposal did not included due diligence so the argument about it is moot.

In the last article you linked contains this paragraph:

"If the buyer’s inspection reveals that everything is fine, the buyer can decide to move forward with the transaction and close the property."

By having both parties sign the purchase agreement, Elon proposed, he "closed" on the deal making it final. All that was left was for him to arrange for the payment. Agreeing on terms isn't finalizing the deal. It's the part of the process that comes before due diligence is executed.

 

[Endymio]

Due diligence isn't completed after the purchase it's before

Due diligence is performed after a purchase contract is signed but before the acquisition is completed. In other words, exactly where the Twitter deal is in now. How much longer are you going to deny reality?

Furthermore, due diligence aside, it is a well-established point of US law that no contract survives even negligent misrepresentation, much less fraudulent misrepresentation. There are literally thousands of court rulings as precedent. It took me all of three seconds to find one similar to the Musk-Twitter case, ("Erlson Precision Holdings v. Hampson Industries"). In this case, the buyer managed to not only back out of a purchase agreement, but actually reverse[/v] an already-consummated sale, due to the seller's misrepresentation:

The judge concluded that, while the CEO had not himself given the erroneous forecasts to the Buyer or instructed anyone else to provide them to the Buyer, he knew (I) the forecasts had been provided to the Buyer and (ii) they were wrong and contained misleading information....[v]Accordingly, the judge ruled that the Buyer was entitled to rescind the sale and purchase agreement for fraudulent misrepresentation...

By having both parties sign the purchase agreement, Elon proposed, he "closed" on the deal

It seems I was correct; you've never purchased a home. For future reference, this is how it works: you sign a purchase agreement, you perform your due diligence, then you schedule a closing. In the case of M&A deal, closing the deal often takes years from when the original purchase agreement is signed.

 

[Bobbydpue]

Due diligence is performed after a purchase contract is signed but before the acquisition is completed. In other words, exactly where the Twitter deal is in now. How much longer are you going to deny reality?

Furthermore, due diligence aside, it is a well-established point of US law that no contract survives even negligent misrepresentation, much less fraudulent misrepresentation. There are literally thousands of court rulings as precedent. It took me all of three seconds to find one similar to the Musk-Twitter case, ("Erlson Precision Holdings v. Hampson Industries"). In this case, the buyer managed to not only back out of a purchase agreement, but actually reverse[/v] an already-consummated sale, due to the seller's misrepresentation:

The judge concluded that, while the CEO had not himself given the erroneous forecasts to the Buyer or instructed anyone else to provide them to the Buyer, he knew (I) the forecasts had been provided to the Buyer and (ii) they were wrong and contained misleading information....[v]Accordingly, the judge ruled that the Buyer was entitled to rescind the sale and purchase agreement for fraudulent misrepresentation...

It seems I was correct; you've never purchased a home. For future reference, this is how it works: you sign a purchase agreement, you perform your due diligence, then you schedule a closing. In the case of M&A deal, closing the deal often takes years from when the original purchase agreement is signed.

Cool story about Erlson Precision Holdings:
1) This case was in the UK using UK laws
2) the two deals aren't similar at all unless there is a dispute between Twitter and an unknown client that would significantly reduce revenue.
3) The deal went through on appeal.

The number of bots on the platform doesn't matter to the performance of the company. Twitter didn't make any changes to increase or decrease the amount of money the company was making.

I mentioned all the points made by LegalEagle's Youtube channel presented by Devin, an actual lawyer. In the video "Elon Musk Pulls Out" by LegalEagle at 3:52 Devin says what I've said: the time for due diligence is long over. It was over the second Elon signed the merger agreement.

Mergers and aquisition law is not the same as real estate law. Do you understand the concept of Material Adverse Effect used in contract law which is especially important in Delaware? Since you were posting documents from before 22 April I can assume you didn't read the merger agreement. Please find that document and quote the section about due diligence and material adverse effect/change.

Musk claimed he wanted to buy Twitter to solve its issues with spam and bots among other things. He seemed well aware of the issues at the time and now he's completely adverse to spam bots and the other issues he wanted to solve previously.

 

[Endymio]

The number of bots on the platform doesn't matter to the performance of the company. Twitter didn't make any changes to increase or decrease the amount of money the company was making.

Lol, what? Every bot is one less actual user. If Twitter's users are 20% bots, then their mDAU is wrong by 20%, the company's ad revenue drops by 20%, and their gross margin drops by much more than 20%.

Mergers and aquisition law is not the same as real estate law.

And most of the links and quotes I listed came from M&A sites:

"...due diligence is the extensive review of an asset or business after a buyer and seller have already come to a purchase agreement"

Do you understand the concept of Material Adverse Effect used in contract law which is especially important in Delaware? Please find the [merger] document and quote the section [on] material adverse effect"

I'm glad you asked! The merger agreement includes nine (9) different MAE carveouts. I'll list them if you wish, but not included anywhere in that exception list is any clause related to Twitter's mDAU figures. They are the primary basis for the company's net worth, and if they are substantially incorrect, that certainly qualifies as a MAE under Delaware chancery law.

Furthermore, even if Twitter had included such a carveout, it would not cover the case of fraudulent misrepresentation. If Twitter's figures are inaccurate or incomplete, and Twitter knew it, the deal is void.