Opinion: I’m a Silicon Valley M&A pro, and my advice to Elon Musk is to stop his Twitter ratings game

There’s a lot more at stake for Elon Musk (and the companies he controls) in the drama unfolding on Twitter than losing a case in the Delaware Court of Chancery and being legally obligated to pay billions in dollars above the market price to buy Twitter.

The bigger issue is Musk’s reputation as a reliable business partner.

I’ve been involved in tech M&A in Silicon Valley for over 20 years and consider myself a fan of Elon Musk as an entrepreneur. I always encourage Tesla TSLA,
SpaceX, Hyperloop and all of its other innovative initiatives to thrive and help build a better future for us all. That’s why I’m deeply troubled by the cavalier way Musk called off the Twitter acquisition and the posture of his legal team ever since.

On July 8, Musk informed Twitter that he was calling off the acquisition. He blamed Twitter’s failure to produce enough information regarding spam accounts (or spam bots) on the platform, which he considers a violation of the merger agreement. Four days later, Twitter sued Musk to force the billionaire to close the deal. Whether Twitter was obligated to provide the information requested by Musk, and if so, whether it failed to provide that information will be the focus of the trial in October.

There are two main theories as to why Musk wants out of the deal: (a) buyer’s remorse, or (b) an outright breach of contract by Twitter. If Musk’s actions are truly out of buyer’s remorse and a desire to get out of what he may see as a bad financial deal by seizing on a technical flaw in the contract, then he is clearly breaching his agreement in bad faith. and thus consciously sets fire to his own reputation as a highly upright member of the business community. A deal is a deal, even if it’s bad in hindsight. He wouldn’t have let Twitter not sell to him if, for example, Twitter’s revenue skyrocketed after the deal was signed.

Instead, consider the possibility that, as it claims, Twitter failed to meet due diligence and disclosure obligations under the merger agreement. Unfortunately, it’s hard to take that possibility seriously when considering Musk’s actions and the legal posture of his legal team.

The first problem here is that instead of suing to compel Twitter to disclose and provide what it needs, Musk walked away from the deal. This course of action makes little sense to someone contractually committing to an acquisition, which his signature on this merger agreement indicates.

Imagine finding your dream home and making a deal to buy it, but then sellers are slow to provide you with some of the key disclosures. Do you then simply cancel the purchase or do you take all necessary measures to oblige the sellers to respect their contract?

By insisting on canceling the deal before he gets all the information he needs, Musk is certainly sending a signal that his priority is finding a way out and not getting information and finding out the facts about the spam accounts.

A deal is a deal, even if it’s bad in hindsight.

The second issue here is its legal team’s denial of Twitter’s request for a speedy trial, arguing that their “fake account and spam dispute is . . . extremely factual and expert, requiring considerable time for discovery,” asking that a trial date be set sometime within the next year. Yet Musk also says he thinks Twitter’s spam problems are serious and that this underpins his decision to terminate the deal.

All of this begs the question that if Musk has a justified belief here, why would his legal team need until next year to prove it in court?

And finally, there is a real human cost. Despite its public disputes with Twitter’s board or management, Twitter is a company with around 8,000 employees, mostly innocent bystanders caught in the crossfire. The lives of these employees have been thrown into uncertainty since the announcement of the acquisition in April.

To make matters worse, Musk even announced to all employees in June that he would likely be laying off some of the workforce. If he was really determined to go through with the acquisition, would he want to demoralize the workforce in this way?

For tech companies like Twitter, the biggest asset is the team. A serious acquirer would not want to extend the time it takes to complete a transaction because any delay increases the risk of losing some of the most valued talent. This same acquirer would like to ensure the quickest resolution of any dispute arising during the acquisition process.

As a former corporate lawyer and someone who has been involved in several M&A deals since the late 1990s, I would advise Musk to pay more attention to the court of public opinion and its reputation as a buyer and business partner than to play audience games. He needs to clarify the data behind his belief in Twitter’s spam problem and find the quickest way to solve this problem fairly.

Otherwise, no matter how the court case plays out, he (and his companies) will lose a lot of credibility in any business transaction. Who would want to enter into any meaningful contract with someone who has a reputation for reneging on his promises?

Touraj Parang is a seasoned Silicon Valley marketer and is the president and chief operating officer of Serve Robotics, which he helped spin out of Uber. He is also the author of “Exit Path: How to Win the Startup End Game”.

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